Hi 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

GIFT  OF 

Hilde  Dietzgen  Charlton 

In  Memory  of 
Her  Mother 


, 


library- 
Institute  of  Industrial  Relations 
University  of  California 
Los  Angeles  24,  California 


, 


Publications  of  the  National  Bureau  of 
Economic  Research,  Incorporated 

NO.  2 


INCOME  IN  THE  UNITED  STATES 
ITS  AMOUNT  AND  DISTRIBUTION 

1909-1919 


, 


INCOME  IN  THE  UNITED  STATES 

ITS  AMOUNT  AND  DISTRIBUTION 

1909  1919 


BY 

THE  STAFF  OF  THE  NATIONAL  BUREAU  OF  ECONOMIC 
RESEARCH,  INCORPORATED 

WILLFORD  I.  KING  OSWALD  W.  KNAUTH 

FREDERICK  R.  MACAULAY 

EDITED  BY 
WESLEY  C.  MITCHELL 


VOLUME  II 
DETAILED  REPORT 


NEW  YORK 
NATIONAL  BUREAU  OF  ECONOMIC  RESEARCH 

1922 


COPYRIGHT,    1922,   BV 
NATIONAL  BUREAU  OP  ECONOMIC  RESEARCH,    IXC. 


Printed  in  the  U.  £.  A. 


, 


PREFATORY  NOTE 

Income  in  the  United  States  is  published  in  two  volumes.  The  first 
volume,  which  has  already  appeared,  is  a  summary  of  the  findings,  intended 
for  readers  who  are  primarily  interested  in  the  results.  The  present  vol- 
ume gives  in  full  the  methods  and  estimates  on  which  the  results  shown  in 
the  first  volume  are  based.  In  addition,  it  goes  into  many  details  concern- 
ing particular  industries. 

While  the  Summary  Volume  was  a  joint  product  of  the  Staff  of  the  Na- 
tional Bureau  of  Economic  Research,  the  detailed  estimates  now  pre- 
sented are  primarily  the  work  of  three  individuals.  Mr.  King  is  responsi- 
ble for  the  estimate  of  the  National  Income  based  on  the  value  product  of 
different  industries;  Mr.  Knauth  made  the  estimate  based  on  incomes 
received  by  individuals;  and  Mr.  Macaulay  undertook  the  discussion  of 
the  problem  of  the  distribution  of  income  by  income-classes. 

Unity  was  preserved  by  means  of  many  consultations,  and  the  whole 
book  was  edited  by  Mr.  Mitchell.  Like  all  the  Bureau's  publications,  the 
manuscript  of  the  present  volume  was  submitted  to  the  Directors  and 
approved  by  them;  though  not  before  many  changes  of  detail  and  many 
suggestions  had  been  incorporated.  The  Directors  have  made  a  construc- 
tive as  well  as  a  critical  contribution  to  the  book  as  it  now  stands.  At 
some  points,  where  the  manuscript  was  not  changed  to  accord  with  individ- 
ual suggestions,  the  Directors  have  inserted  footnotes  to  indicate  their 
points  of  view. 

The  present  Board  of  Directors  is  constituted  as  follows: — 

Directors-at-Large 

T.  S.  Adams,  Advisor  to  the  U.  S.  Treasury  Department. 

John  R.  Commons,  Professor  of  Political  Economy,  University  of  Wisconsin. 

John  P.  Frey,  Editor  of  the  International  Mohters'  Journal. 

Edwin  F.  Gay,  President  of  the  New  Yorl;  Evening  Post. 

Harry  W.  Laidler,  Secretary  of  the  League  for  Industrial  Democraey. 

Elwood  Mead,  Professor  of  Rural  Institutions,  University  of  California. 

Wesley  C.  Mitchell,   Professor  of  Economics,   Columbia  University. 

J.  E.  Sterrett,  Member  of  the  firm  of  Price,  Waterhouse  and  Co. 

N.  I.  Stone,  Labor  Manager,  Hickey-Freeman  Company. 

Allyn  A.  Young,  Professor  of  Economics,  Harvard  University. 

V 


.3 


vi  PREFATORY  NOTE 

Directors-by-Appointment 

Hugh  Frayne,  The  American  Federation  of  Labor. 
David  Friday,  The  American  Economic  Association. 
W.  R.  Ingalls,  American  Engineering  Council. 
J.  M.  Larkin,  National  Personnel  Association. 
W.  H.  Nichols,  Jr.,  National  Industrial  Conference  Board. 
George  E.  Roberts,  The  American  Bankers'  Association. 
Malcolm  C.  Rorty,  The  American  Statistical  Association. 
A.  W.  Shaw,  The  Periodical  Publishers  Association. 
Gray  Silver,  The  American  Federation  of  Farm  Bureaus. 


. 


TABLE  OF  CONTENTS 

Page 

Prefatory  Note 

PART    I 

THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

Chapter 

1.  Principles  and  Methods 1 

§    la  Basis  of  Estimates 3 

§    lb  Business  Savings  Counted  as  Income 3 

§    lc  Net  Versus  Gross  Disbursements 3 

§    Id  What  the  Net  Value  Product  Includes 4 

§    le  Estimating  Individual  Income  from  a  Study  of  the  Product 

of  Industries 4 

§    If  Impossibility  of  Measuring  Value  of  Government  Service 

to  Business 5 

§    lg  Are  Corporate  Surpluses  Accurately  Reported? b' 

§    lh  Minor  Errors  and  Irregularities  in  the  Tables 7 

§    li    Possible  and  Probable  Errors  of  Estimates 7 

§    lj    General  Plan  of  Presenting  Estimates 10 

§    Ik  Reduction  of  Values  to  Money  of  Constant  Purchasing 

Power 10 

§    11    Average  Annual  Earnings  Versus  Wage  Rates 12 

§  lm  Interest  Payments  on  Consumption  Loans  not  Deducted 

from  Income 12 

2.  Preliminary  Studies 14 

§    2a  An  Estimate  of  the  Population  of  the  United  States  for  the 

Intercensal  Years 14 

§    2b  An  Index  of  the  Prices  of  Consumption  Goods  Used  by 

Manual  and  Clerical  Workers'  Families 17 

§  2c  Price  Indices  of  Consumption  Goods  Used  by  the  Well- 
to-do-Classes  24 

§  2d  An  Estimate  of  the  Industrial  Distribution  of  the  Gain- 
fully Employed  Persons  in  the  Continental  United  States    31 

3.  Agriculture 40 

§    3a  Sources  of  Information 40 

§    3b  Methods  of  Procedure 40 

vii 


viii  TABLE  OF  CONTENTS 

Chapter  Page 

§    3c  The  Value  of  Animal  Products 41 

§    3d  The  Value  of  Crops  Not  Fed  to  Live  Stock 50 

§    3e  Payments  by  Agriculture  for  the  Products  of  Other  Indus- 
tries    51 

§    3f  The  Net  Value  Product  of  Agriculture 54 

§    3g  The  Share  of  the  Employees 55 

§    3h  The  Share  of  the  Entrepreneurs  and  Other  Property  Own- 
ers    59 

§    3i  The  Physical  Output  of  Agricultural  Produce 59 

§    3j  The  Relative  Position  of  Agriculture  Among  the  Industries  62 

§    3k  Returns  for  the  Efforts  of  Farm  Operators 62 

4.  Mines,  Quarries,  and  Oil  Wells 65 

§    4a  Sources  of  Information 65 

§    4b  The  Share  of  the  Entrepreneurs  and  Other  Property  Own- 
ers    65 

§    4c  Total  Wages  and  Salaries 70 

§    4d  Number  of  Employees  and  Average  Earnings 73 

§    4e  Total  Net  Value  Product  and  Share  of  Employees 74 

§    4f  The  Mineral  Output  Compared  to  Earnings  and  Population  75 

5.  Factory  Production 78 

(Covering  that  part  of  the  private  Manufacturing  Industry  in- 
cluded in  the  totals  presented  by  the  United  States  Census  of 
1914.) 

§    5a  Importance  of  the  Industry 78 

§    5b  The  Gross  Value  of  the  Products 78 

§    5c  The  Division  of  the  Net  Value  Product  in  the  Census  Years  84 
§    5d  Mode  of  Estimating  the  Net  Value  Product  for  Intercensal 

Years 86 

§    5e  The  Share  of  the  Employees 87 

§    5f  The  Share  of  the  Entrepreneurs  and  Other  Property  Own- 
ers   91 

§    5g  The  Fraction  of  the  Net  Value  Product  Paid  Out  as  Wages 

or  Salaries 98 

6.  Summary  of  the  Hand  Trades 99 

§    6a  Introduction 99 

§    6b  Analysis 101 

7.  The  Construction  Industry 103 

(Shipbuilding  Excluded) 

§    7a  Introduction 103 


TABLE  OF  CONTENTS  ix 

Chapter  Page 

§    7b  Sources  of  Data 103 

§    7c  The  Volume  of  Construction 103 

§    7d  The  Aggregate  of  Wages  and  Salaries 105 

§    7e  The  Share  of  the  Entrepreneurs  and  Other  Property  Own- 
ers: First  Estimate 107 

§    7f  The  Share  of  the  Entrepreneurs  and  Other  Property  Own- 
ers: Second  Estimate 110 

§    7g  Purchasing  Power  of  Share  of  Entrepreneurs  and  Other 

Property  Owners Ill 

§    7h  The  Total  Value  of  Construction 114 

8.  Summary  of  Transportation 116 

9.  Steam  Railway,  Switching  and  Terminal  Companies 119 

§  9a  Nature  of  Available  Information 119 

§  9b  Method  of  Utilizing  Data 119 

§  9c  The  Net  Value  Product  and  Its  Distribution 124 

§  9d  The  Physical  Output  per  Employee 124 

§  9e  Growths  of  Railway  Service  and  of  Population  Compared  129 

§  9f  The  Purchasing  Power  of  the  Shares  in  the  Net    Value 

Product 130 

10.  Pullman  Car  Transportation 133 

§  10a  Available  Information 133 

§  10b  The  Share  of  the  Stockholders 133 

§  10c  Share  of  the  Employees  in  the  Net  Value  Product 135 

§  lOd  Average  Annual  Earnings  of  Employees 137 

§  lOe  The  Annual  Output  per  Employee 138 

§  lOf  Relative  Growths  of  Pullman  Service  and  Population.  .  .  .  139 

11.  Express  Companies 141 

§  11a  Introduction 141 

§  lib  Disbursements  to  Security  Holders  and  Building  Owners.  141 

§  lie  Total  Share  of  Security  Holders  and  Building  Owners.  ...  Ill 

§  lid  The  Share  of  the  Employees 143 

§  lie  The  Total  Net  Value  Product  and  Its  Distribution 144 

§  1  If  The  Number  of  Employees 140 

12.  Street  and  Electric  Railways IIs- 

§  12a  Census  Data  Available 148 

§  12b  Share  of  Security  Holders  and  Other  Property  Owners.  .  .  148 

§  12c  Share  of  the  Employees 150 

§  12d  Corporate  Savings 151 


x  TABLE  OF  CONTENTS 

Chapter  Page 

§  12e  Average  Annual  Earnings  of  Employees 152 

§  12f  Purchasing  Power  of  Share  of  Security  Holders  and  Prop- 
erty Owners 153 

§  12g  The  Average  Output  per  Employee 155 

§  12h  Relative  Growths  of  Street  Car  Service  and  National  Popu- 
lation    15b' 

13.  Private  Electric  Light  and  Power  Companies 157 

§  13a  The  Census  Data 157 

§  13b  The  Net  Value  Product  and  Its  Distribution 159 

14.  Telegraphs 168 

§  14a  The  Census  Figures 168 

§  14b  Disbursements  to  Stock  and  Bond  Holders 168 

§  14c  Corporate  Savings 173 

§  14d  Purchasing  Power  of  Share  of  Property  Owners  and  Entre- 
preneurs    174 

§  14e  The  Number  of  Employees  and  Their  Share  in  the  Value 

Product 175 

§  14f  Average  Annual  Earnings  of  Employees 177 

15.  Telephones 179 

§  15a  Introduction 179 

§  15b  Share  of  Entrepreneurs  and  Other  Property  Owners 179 

§  15c  The  Net  Value  Product  and  Its  Distribution 183 

§  15d  The  Number  of  Employees 184 

§  15e  Average  Annual  Earnings  of  Employees 185 

§  15f  The  Efficiency  of  the  Employees 186 

§  15g  Telephone  Revenue  Compared  for  Residence  and  Business 

Telephones 189 

§  15h  Relative  Growth  of  Telephone  Service  and  Population.  .  .  .  189 

16.  Transportation  by  Water 191 

§  16a  Sources  of  Information 191 

§  16b  Assumption  Made 192 

§  16c  Mode  of  Estimating  Gross  Earnings 192 

§  16d  The  Share  of  the  Owners  and  Investors 193 

§  16e  The  Share  of  the  Employees 195 

§  16f  The  Net  Value  Product  and  Its  Division 199 

§  16g  The  Average  Annual  Earnings  of  Employees 199 

§  16h  The  Tonnage  of  the  American  Merchant  Marine 201 

17.  Banking 202 

§  17a  Sources  of  Information 202 


TABLE  OF  CONTEXTS  xi 

Chapter  Page 

§  17b  The  Composition  of  the  Net  Value  Product 202 

§  17c  Net  Versus  ( Jross  Dividends 202 

§  17d  Undivided  Profits 202 

§  17e  The  Purchasing  Power  of  Dividends  and  [nteresl 204 

§  17f  Employees,  Salaries,  and  Wages 205 

§  17g  The  Share  of  Salaries  and  Wages  in  the  Value  Product..  .  206 

§  17h  Banking  Facilities  Compared  to  Population  and  Income..  207 

§  17i  Changes  in  the  Volume  of  Business  per  Bank 209 

18.  All  Braxches  of  Government 210 

§  18a  The  Components  of  the  Net  Value  Product 210 

§  18b  The  Number  of  Employees 210 

§  18c  The  Amount  Paid  in  Wages  or  Salaries 212 

§  18d  The  Average  Annual  Earnings  of  Employees 213 

§  18e  Pensions 215 

§  18f  Interest  on  Public  Debts 216 

§  18g  The  Net  Value  Product  and  Its  Division 219 

§  18h  The  Per  Capita  Net  Value  Product 220 

§  18i  The  Share  of  Government  in  the  National  Value  Product.  .  221 

19.  Unclassified  Industries  axd  Miscellaneous  Income 223 

§  19a  The  Field  Covered 223 

§  19b  Number  of  Persons  Occupied  in  Unclassified  Industries..  .  223 

§  19c  The  Earnings  of  Employees 223 

§  19d  The  Effect  of  the  War  on  the  Number  of  Employees 224 

§  19e  The  Profits  of  Entrepreneurs 225 

§  19f  Rents  and  Royalties 225 

§  19g  The  Total  Share  of  Enterprise  and  Property 226 

§  19h  Other  Classes  of  Miscellaneous  Income 227 

§  19i  The  Net  Rental  Value  of  Owned  Homes 228 

§  19j  Interest  on  the  Value  of  Direct  Goods 228 

§  19k  Profits  from  Cow-Keeping 22! » 

§  191  Profits  from  Raising  Poultry  and  ( rardens 230 

§  19m  The  Division  of  the  Net  Value  Product 231 

20.  Summary  of  Part  1 233 

§  20a  The  Average  Income  per  Ammain 233 

§  20b  Business  Savings 23 1 

§  20c  Miscellaneous  Summary  Tables  Not  Appearing  in    Vol- 
ume 1 235 


xii  TABLE  OF  CONTENTS 


PART    II 

THE   ESTIMATE  BY   INCOMES   RECEIVED 
Chapter  Page 

21.  Introduction 249 

§  21a  The  Problem 249 

§  21b  The  Method  and  Data 250 

22.  Total  Amount  of  Income  Received  by  Persons  Having  Over 

$2,000  Per  Year 253 

§  22a  Introduction 253 

§  22b  Estimate  from  Income  Tax  Data 253 

§  22c  Tax-Exempt   Income 260 

23.  Total  Amount  of  Income  Received  by  Persons  Having  Under 

$2,000 269 

§  23a  Introduction 269 

§  23b  Personal  Earnings 269 

§  23c  The  Earnings  of  Farm  Laborers 289 

§  23d  Pensions 291 

§  23e  The  Rental  Value  of  Homes  Owned  by  Their  Occupants.  .   291 
§  23f  Income  from  Investments 294 

24.  Farmer's  Income 298 

§  24a  Introduction 298 

§  24b  First  Estimate — Based  on  Total  Production  and  Expenses  300 
§  24c  Second  Method — Based  on  Average  Ratio  of  Expenses  to 

Total  Product 305 

§  24d  Third  Estimate — Based  on  Sample  Incomes 308 

§  24e  Final  Estimate  of  Farmers'  Incomes 310 

§  24f  Comparison  with  Other  Estimates 310 

§  24g  Farmers  Having  Incomes  Over  and  Under  $2,000 312 

25.  Corporate  Surplus 314 

§  25a  Definition  of  Corporate  Surplus 314 

§  25b  The  Propriety  of  Counting  Surplus  as  Part  of  the  National 

Income 314 

§  25c  The  Genuineness  of  Reported  Surplus  Accounts 315 

§  25d  The  Data 321 

§  25e  Conclusions 328 

26.  Summary  of  Part  II .  . 330 

§  26a  The  Total  Income  of  the  United  States,  1910  to  1919 330 


. 


TABLE  OF  CONTENTS  xiii 

Chapter  Page 

§  26b  The  Degree  of  Error  in  the  Estimate 330 

§  20c  Percentage  Division  of  Number  of  Persons  Having  Over 

$2,000  and  Under  $2,000  Income  per  Year 332 

§  26d  The  Percentage  of  the  Total  Income  Obtained  by  the  High- 
est 5  Per  Cent  of  Income  Receivers : 333 

§  26e  The  Position  of  the  Farmer 333 

§  26f  Income  in  Each  Year  in  Terms  of  Constant    Purchasing 

Power 333 

§  20g  The  Average  Income  per  ( !apita  in  Each  Year 337 


PART   III 

THE  PERSONAL  DISTRIBUTION  OF  INCOME  IN  THE  UNITED 

STATES 

27.  The  Problem 341 

Practical  and  theoretical  difficulties  connected  with  formulation 

of  the  problem.  Relation  of  personal  distribution  to  factorial 
distribution. 

28.  Pareto's  Law  and  the  Problem  of  Mathematically  Describ- 

ing the  Frequency  Distribution  of  Income 344 

Pareto's  Law.  Improbability  that  any  simple  mathematical  ex- 
pression adequately  describing  the  frequency  distribution  of  in- 
come can  ever  be  formulated.    Heterogeneity  of  the  data. 

29.  Official  Income  Censuses 395 

The  Australian  income  census  of  1915. 

30.  American  Income  Tax  Returns 401 

Peculiarities  of  the  tax  returns  from  year  to  year.     Irregularities 

and  fluctuations  in  the  distribution  of  non-reporting  and  under- 
statement. The  undcr-$5,0()()  and  over-$5,000  groups.  Waives 
and  total  income. 

31.  Income  Distributions  from  Other  Sources  Than  Income  Tax 

Returns 415 

Purposes  for  which  existing  distributions  have  been  collected  make 
them  extremely  ill  adapted  to  our  use — picked  data. 

32.  Wage  Distribution 418 

Relations  between  rates  and  earnings,  earnings  and  income.  Earn- 
ings per  hour,  per  day,  and  per  week.     Distribution  of  hours 


xiv  TABLE  OF  CONTENTS 

Chapter  Page 

worked  in  a  week,  and  weeks  worked  in  a  year.  Federal  returns 
of  income  by  sources.  The  problem  of  deriving  one  regression 
line  from  the  other. 

33.  The  Construction  of  a  Frequency  Curve  for  All   Income 

Recipients 424 

An  income  census  the  direct  and  adequate  method  of  solving  the 
problem.  Piecing  together  the  existing  data.  Checking  them 
for  internal  consistency  and  agreement  with  collateral  informa- 
tion.   Conjectural  nature  of  final  results. 


PART  I 

THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

By 

WILLFORD  I.  KING 

ASSISTED   BY 

VIRGINIA  SANDMEYER 
DOROTHY  J.  ORCHARD 
KATE   E.    HUNTLEY 


, 


CHAPTER  1 

PRINCIPLES  AND  METHODS 

§  la.  Basis  of  Estimates 

The  object  of  this  study  is  to  ascertain  the  total  annual  income  which 
the  people  of  the  United  States  derive  from  each  of  the  leading  industrial 
fields.  The  method  used  for  ascertaining  this  total  for  each  industry  is 
first  to  find  out  how  much  income  is  withdrawn  from  the  industry  for  indi- 
vidual use  and  then  to  add  to  this  amount  the  total  savings  made  during 
the  year  and  retained  in  their  business  by  all  the  enterprises  engaged  in 
the  industry  in  question. 

§  lb.  Business  Savings  Counted  as  Income 

That  business  savings  really  constitute  a  part  of  the  national  income  for 
the  year  in  which  they  are  made  has  been  denied  by  some  students  of  the 
subject.  The  ground  for  their  contention  is  that  such  savings  merely  make 
possible  an  increase  in  the  income  of  future  years  and  hence  should  be 
ignored  in  the  income  report  of  the  year  when  the  saving  is  done. 

This  method  of  treating  business  savings,  though  plausible,  is  open  to 
grave  objections.  The  income  with  which  we  are  dealing  throughout  this 
study  is  book  income,  that  is  the  amount  shown  as  net  gain  by  an  accurate 
accounting  system  and  is  radically  different  from  psychic  income  which 
accrues  only  when  the  goods  render  service  to  the  consumer.  In  the 
accounts  of  practically  every  business,  the  net  income  as  recorded  includes 
the  annual  surplus  as  well  as  all  disbursements  to  stockholders  or  owners. 
This  uniform  policy  shows  that  a  consensus  of  opinion  exists  among 
accountants  that  savings  are  a  form  of  income.  If  the  accountants  are 
wrong,  we  are  driven  to  the  conclusion  that  the  amount  of  the  annual  income 
of  a  corporation  may  be  altered  greatly  by  a  vote  of  the  director-,  concern- 
ing the  disposition  of  earnings !  Furthermore,  when  a  corporation  reports 
increased  net  earnings,  even  if  no  dividends  are  declared,  the  stock  tends 
to  rise  sharply  in  value,  and  any  stockholder  may  ;it  once  realize  personal 
income  by  selling  his  shares  at  the  enhanced  price.  For  the  reasons  stated, 
it  seems  best  to  include  business  savings  in  the  income  for  the  currenf  year. 

§  lc.  Net  Versus  Gross  Disbursements 

A  number  of  the  great  industrial  fields  of  the  United  States  are  domi- 
nated by  corporations  and,  in  such  cases,  a  study  of  the  income  created  by 

3 


4  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

the  industry  is  mainly  an  analysis  of  corporation  reports.  This  is  emphat- 
ically true  in  the  case  of  the  various  branches  of  transportation.  Now 
corporations  do  not  show  in  their  published  reports  the  amounts  of  interest 
and  dividends  disbursed  to  private  individuals  as  contrasted  with  sums  of 
similar  nature  paid  to  other  business  enterprises.  But  in  making  up  a  total 
of  income  for  the  country,  these  inter-business  payments  must  be  elimi- 
nated to  prevent  duplication.  The  method  adopted  for  accomplishing  this 
result  is  to  deduct  from  the  sum  of  interest  and  dividends  paid  out  by  a 
corporation  all  bond  interest  and  dividends  received  from  other  corpora- 
tions. This  plan  rests  upon  the  principle  that  the  corporation  making  the 
final  payment  is,  in  this  instance,  merely  an  intermediary  between  the 
original  corporation  and  the  private  investor.  This  principle  seems  to  be 
logical  although  its  application  occasionally  gives  rise  to  certain  difficulties 
in  differentiating  between  disbursements  and  business  savings. 

§  Id.  What  the  Net  Value  Product  Includes 

The  net  value  product  of  each  industry  is  assumed,  for  the  purposes  of 
this  study,  to  include  the  returns  for  the  services  of  all  persons  engaged  in 
the  industry,  whether  these  persons  are  proprietors  or  employees,  and  of 
all  property  aiding  in  the  productivity  of  the  industry.  It  has,  for  example, 
been  assumed  that  the  stockholder  or  other  entrepreneur  owning  an  equity 
in  a  plant,  the  holder  of  the  mortgage  on  the  plant,  and  the  lessor  of  prop- 
erty utilized  by  the  business  are  all  alike  dependent  upon  the  gains  of  the 
enterprise  for  at  least  part  of  their  income,  and  hence  may  all  be  classed 
together  as  being  owners  of  property  devoted  to  the  undertaking. 

§  le.  Estimating  Individual  Income  from  a   Study  of  the  Product  of 

Industries 

Owing  to  the  form  in  which  the  data  for  some  industries  are  available, 
it  is  impossible  to  estimate  directly  the  amounts  of  income  derived  from 
them  by  individuals  or  saved  by  the  business  enterprises  in  the  industry. 
In  such  instances,  one  naturally  has  recourse  to  the  alternative  method  of 
subtracting  from  the  gross  output  of  the  industry  in  question  all  payments 
made  to  other  industries  for  the  materials  or  services  which  they  have  con- 
tributed. In  following  this  method,  the  ideal  course  of  procedure,  in  the 
case  of  any  industry,  is  to  deduct  from  the  gross  value  of  its  products  not 
only  the  cost  of  materials  used  but  also  such  payments  as  freight  and 
insurance  charges,  bank  interest,  and  those  taxes  which  represent  the  value 
of  government  aid  and  protection,  furnished  to  the  industry.  The  amount 
remaining  after  these  deductions  have  been  made  represents  the  net  income 
— a  quantity  which  may  be  either  saved  or  distributed  to  individuals.  In 
general,  every  industry  is  credited  with  all  goods  sold  to  dealers,  consumers, 


PRINCIPLES  AND  METHODS  5 

or  other  industries,  and  debited  with  all  indirect  or  production  goods 
received  from  other  industries.     Government,   like  any  other  industry, 

ought  to  be  credited  with  the  value  of  its  services  and  debited  with  the 
indirect  or  production  goods  received  from  other  industries.  An  indus- 
try can  never  be  debited  with  charges  for  direct  or  consumption  goods,1  for 
these  are  not  used  to  further  its  business  or  add  to  its  output. 

Just  as  industries  pay  freight  charges  for  the  services  of  railways,  so 
they  also  pay  taxes  to  meet  the  cosl  of  government.  In  so  far  as  the  tax 
money  buys  from  government  indirect  (production)  goods  or  secures  ser- 
vices in  the  form  of  protection  or  assistance  to  the  industry,  the  industry 
in  question  evidently  ought  to  be  debited  with  the  tax  just  as  it  is  debited 
with  freight  charges.  In  so  far,  however,  as  the  tax  money  paid  by  an 
industry  goes  not  to  pay  for  aid  to  the  industry  but  instead  to  buy  direct 
government  services  to  individuals,  the  industry  cannot  justly  be  debited 
with  such  taxes;  for,  in  such  cases,  the  services  of  government  are  not  busi- 
ness aids  but  are  forming  part  of  the  consumable  income  of  individuals 
and  therefore  fall  into  the  category  of  direct  services — a  class  which, 
according  to  the  principles  enunciated  above,  are  never  to  be  charged 
against  an  industry. 

This  line,  however,  between  the  taxes  that  theoretically  should  and 
theoretically  should  not  be  deducted  from  the  gross  value  of  an  industry's 
output  is  impossible  to  draw  in  practice.  Statistically,  the  only  feasible 
course  is  to  deduct  all  of  the  taxes  levied  on  the  business.2  Such  a  deduc- 
tion inevitably  gives  rise  in  most  instances  to  an  error  in  the  final  results — 
unfortunately  only  one  of  several  types  of  unavoidable  error  to  which  it  is 
necessary  to  call  attention  at  this  point. 

§  If.  Impossibility    of    Measuring    Value    of    Government    Service    to 

Business 

One  of  the  most  serious  of  these  errors  arises  from  the  impossibility  of 
dividing  all  services  rendered  by  the  various  blanches  of  government  into 
two  classes,  namely: — 

1.  Those  rendered  to  business. 

2.  Those  serving  the  people  directly. 

This  impossibility  has  compelled  us  to  act  on  the  basis  of  the  assumption 
that  the  taxes  levied  against  each  field  of  business  are  equivalent  to  the 
value  of  the  service  rendered  t<>  thai  industry  by  government.  This  as- 
sumption is,  however,  likely  to  be  far  from  the  truth.  In  1918,  for  example, 
manufacturing  corporations  paid  to  the  Federal  Government  $2,112,044,- 

1  Expenses  for  welfare  work,  for  example,  are  not  deductions  from  the  value  product  of 
an  industry. 

*  See  Volume  I,  Chapter'-',  Sec.  IV  for  a  further  discussion  of  this  point. 


6  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

810  as  income  tax,  war  profits  tax,  and  excess  profits  tax,  and  considerable 
additional  amounts  were  paid  by  individual  manufacturers  and  partner- 
ships operating  in  this  field.  Exact  statistics  are  not  available,  but  the 
indications  are  that  the  entire  agricultural  industry  did  not  pay  to  the 
United  States  Government  over  $100,000,000  in  these  classes  of  taxes.1 
It  seems  highly  improbable  that  in  1918  the  Federal  Government  ren- 
dered to  the  manufacturing  industry  service  valued  at  more  than  twenty 
times  that  furnished  to  agriculture.  It  may  well  be  that  the  aid  of  the 
National  Government  to  the  farmers'  business  was  worth  more  than  $100,- 
000,000  but  it  scarcely  appears  credible  that  the  manufacturers  received 
service  worth  over  two  billions.  According  to  the  plan  followed  in  this 
study,  however,  the  two  billions  have  been  considered  as  an  expense  to 
the  manufacturing  industry  and  deducted.  Any  part  of  this  amount 
which  is  in  excess  of  the  value  of  the  services  of  the  Federal  Government 
to  the  manufacturers,  represents  a  forced  contribution  to  the  general  wel- 
fare and  should,  in  order  to  obtain  the  correct  figures  for  1918,  be  added 
to  the  net  value  product  of  manufacturing  recorded  in  this  study. 

If  this  type  of  error  results  in  an  underestimate  of  the  income  arising 
from  manufacturing,  it  may,  on  the  other  hand,  show  too  high  value  prod- 
ucts for  some  other  fields;  for  industries  may  exist  which  government 
has  served  much  but  taxed  little.  Unfortunately  it  is  not  at  all  certain 
that  the  errors  arising  from  this  source  cancel  out,  for  we  cannot  measure 
even  approximately  the  total  value  of  the  service  rendered  to  business 
by  government.  It  seems  likely,  however,  that,  since  1917,  business  taxes 
have  been  more  than  sufficient  to  pay  for  the  services  rendered  to  business 
by  all  branches  of  government.  If  so,  this  excess  should  be  added  to  the 
total  income  as  reported  in  this  study  in  order  to  obtain  the  correct  total 
for  the  nation. 

§  lg.  Are  Corporate  Surpluses  Accurately  Reported? 

Another  possible  source  of  grave  errors  is  found  in  the  estimates  of  the 
business  savings  of  the  various  industries.  In  most  instances  these  esti- 
mates have  been  based  upon  reported  surpluses  of  corporations  operating 
in  that  field.  It,  therefore,  becomes  a  question  of  prime  importance  to 
know  whether  the  reported  size  of  such  surpluses  is  reasonably  close  to  the 
truth  or  whether  the  stated  amounts  are  far  too  large  because  of  failure  to 
allow  sufficient  amounts  for  depreciation,  or  are  entirely  too  small,  because 
many  improvements  have  been  charged  to  operating  expenses.  Mani- 
festly it  is  impossible  to  go  behind  the  returns  of  the  reporting  concerns, 
but  it  is  nevertheless  possible  to  ascertain  by  indirect  methods  something 
about  the  validity  of  the  accounting  systems  used  by  the  average  corpora- 

1  See  I  .  S.  Bureau  of  Internal  Revenue,  Statistics  of  Income,  1918,  pp.  11  to  16. 


PRINCIPLES  AND  METHODS  7 

tions.  If  reported  surpluses  are  genuine,  they  should  add  to  the  earning 
power  of  the  companies  accumulating  them  in  proportion  to  the  ratio 
which  these  surpluses  hear  to  the  total  of  previous  investments.  An  inves- 
tigation by  Mr.  Knauth  indicates  that,  in  practice,  earnings  have  increased 
in  just  about  this  proportion.  It  appears,  therefore,  that  no  greal  error 
is  likely  to  arise  from  the  practice  of  accepting  as  accurate  the  amount-  of 
surpluses  reported;  hence  this  practice  has  been  adhered  to  throughout 
this  study. 

§  lh.  Minor  Errors  and  Irregularities  in  the  Tables 

It  is  perhaps  wise  at  this  point  to  mention  certain  mathematical  details 
connected  with  the  presentation  of  data  in  the  accompanying  tables.  The 
basic  figures  in  most  instances  have  such  a  margin  of  error  that  errors  in 
multiplication  or  division  arising  from  the  use  of  a  12  inch  slide  rule  are  of 
negligible  importance,  hence  this  instrument  has  been  frequently  used. 
The  result  is  that  a  computation  by  more  accurate  means  will  occasionally 
reveal  errors  in  the  fourth  significant  figure. 

In  numbers  of  instances,  original  computations  have  been  carried  to 
more  places  than  are  shown  in  the  quantities  entered  in  the  tables  here 
presented,  hence  it  follows  that  an  item  in  a  total  column  may  differ 
slightly  from  the  nominal  sum  of  the  items  in  the  columns  from  which  the 
total  is  derived. 

Owing  to  the  inherent  characteristics  of  the  decimal  system,  when  all  of 
the  percentages  composing  a  whole  are  read  to  any  given  decimal  place,  the 
recorded  items  may  not  add  up  to  exactly  100.  The  same  principle  applies 
to  decimal  fractions.  The  quantities  have  been  correctly  entered,  no 
attempt  being  made  to  obtain  a  total  of  100  (or  of  1,  as  the  case  may 
by  distorting  the  component  parts. 

§  li.  Possible  and  Probable  Errors  of  EstLnatss 

It  is,  of  course,  impracticable  to  esti  n  tte  with  a  iz  •  of  tn  ■ 

po  ible  or  probable  error  in  each  of  the  items  entering  into  the  total. 
However,  it  is  clear  that  the  likelihood  of  error  is  far  greater  in  some  in- 
stance than  in  others.  An  attempt  has  been  made,  therefore,  to  record 
for  each  of  the  principal  items  two  estimates  of  error:  namely,  the  probable, 
and  'he  maximum  reasonable.  The  probable  error  is  denned  as  being  such 
that  the  chances  are  even  that  the  error  is  greater  or  less  than  the  amount 
stated.  The  maximum  reasonable  error  \<  defined  as  being  so  large  thai  the 
chances  are  ten  to  one  that  it  will  not  be  exceeded.  The  1918  estimates 
for  these  errors  of  the  various  items  follow: 


8 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  1A 


ESTIMATED  ERRORS  IN  THE  ITEMS  OF  THE  NATIONAL  VALUE 

PRODUCT  IN  1918 


Industry 


i  I 

tt 

u 

Mineral  Prod 
tt 

uction 

tt 

it 

a 

a 

a 

Factory  Prod 

uction 

tt 

a 

tt 

Construction 

tt 

Automobile  Repairing 

Laundrv .... 

Custom  Grist  Mills. 

a  it  .. 

Custom  Saw  Mills.. 


Shoe  Repairing. 


Tailoring,  Dyeing  & 

Cleaning 


Repair  of  Machines. 

Blacksmithing 

Custom  Dressmaking. 


Railways,  Switching  & 
Terminal  ( !ompanies. 

Railways,  Switching  & 
Terminal  Companies. 

Pullman  Co 


Division 


Crops 
New  Land 
Animal  Products 
Deductions 

Wages  and  Salaries 

Rent 

Savings 

Remainder 

Wages  and  Salaries 

Kent 

Remainder 

Wages  and  Salaries 
Remainder 

Total 

Wages  and  Salaries 
Remainder 

Wages  and  Salaries 
Remainder 

Wages  and  Salaries 
Remainder 

Total 


Total 
Total 
Total 
Total 

Wages  and  Salaries 

Remainder 

Wages  and  Salaries 
Remainder 


Millions  of  dollars 


Size  of 
item 


7,119 

405 

6,189 

-1,031 

1,422 
214 

79 
298 

12,378 

137 

3,503 

964 
317 

367 

106 

84 

2 
13 

2 
3 

111 


661 
61 

210 
83 

2,763 

807 

24 
10 


Probable 

error  a 


500 
200 
500 
200 

70 
40 
20 
30 

200 

70 

300 

150 
100 

90 

15 
15 

1 
8 

1 

1 

50 


150 
40 
SO 
70 

10 
50 

3 

1 


Maximum 

reasonable 

error  b 

1,500 

COO 

1,200 

400 

250 
80 
70 

100 

600 
200 
800 

400 
250 

180 

35 
70 

2 
15 

2 
3 

110 


500 

75 

300 

120 

100 

250 

7 
4 


a  Even  chances. 

'-  Ten  chances  to  one  that  the  error  is  not  larger  than  this  amount. 


, 


PRINCIPLES  AND  METHODS 

TA  RLE  1 A — C'nnlin  lit  </ 


9 


Division 

Millions  of  dollars 

Industry 

Size  of 
item 

Probable 
error 

Maximum 
reasonable 

error 

Express  Co 

Wages  and  Salaries 
Remainder 

93 

—  1  1 

1 
3 

3 

a 

7 

Street  Railway 

Wages  and  Salaries 
Remainder 

31  1 
124 

10 
10 

40 

Commercial  Electric  Light 
&  Power 

Commercial  Electric  Light 
&  Power 

Wages  and  Salaries 
Remainder 

Wages  and  Salaries 
Remainder 

97 

160 

49 
18 

5 

20 

2 
2 

15 
50 

Telegraph 

a 

8 
9 

Telephone                   

Wages  and  Salaries 

Remainder 

194 
85 

5 
6 

15 

20 

Transportation  by  Water.. 

a                    it            it 

Wages  and  Salaries 
Remainder 

421 
85 

30 

20 

150 

60 

Banking 

ti 
a 
it 

Wages  and  Salaries 
1  )ividends 

Surplus 
Remainder 

281 

87 

194 

204 

20 

15 

6 

15 

60 
30 
20 
70 

Government 

a 
tt 

Federal 

State  and  County 
Municipal 
Municipal  Utilities 
Schools 
Deductions 

3,81  1 

384 

707 

39 

578 

—170 

200 
30 
30 
4 
15 
20 

600 

100 
150 

it 

15 

ti 
u 

100 

.-,() 

Unclassified  Industries.  .  .  . 

It                             a 

it                             ti 
a                           n 

Wages  and  Salaries 
( Jorporate  Profits 
Individual  Profits 
Rents 

7,  ()•_>'_' 

1,017 

4,601 

263 

11)0 

101) 

700 
80 

1 ,200 
100 

1,000 
100 

Miscellaneous  Income 

a                           a 
it                           a 

Urban  Agriculture 
Hume  Rental  Value 
Interest  on  ( Jon- 
sumpt  ion  ( roods 

364 
1,237 

1 ,27o 

80 

200 

200 

240 
600 

600 

Total 

60,  v.  1 

5,194 

14,900 

1,266 

Maximum  Reasonable  Error  of  Total. 


3,566 


The  estimated  probable  error  of  the  total,  as  computed  by  the  usual 

formula  from  the  items  given,  amounts  to  1.3  billions.  The  maximum 
reasonable  error  of  the  total  as  shown  by  an  experimental  test  with  the 
items  given  appears  to  be  about  3.6  billions  of  dollars.     The  evidence 


10  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

indicates,  therefore,  that  the  total  is  close  enough  to  the  truth  to  meet  the 
needs  of  most  students  of  the  subject,  the  error  presumably  being  not 
greater  than  six  per  cent  and  perhaps  very  much  less. 

Since  the  errors  for  the  other  years  of  the  decade  are  presumably  sim- 
ilar in  proportionate  size  to  those  in  1918,  no  separate  computations  have 
been  made  therefor. 

§  lj.  General  Plan  of  Presenting  Estimates 

The  general  plan  of  exposition  determined  upon  is  to  attempt  to  show 
for  each  of  the  leading  industrial  fields  covered  by  the  Census: — 

1.  The  net  value  product. 

2.  The  share  of  the  employees  in  the  value  product. 

3.  The  average  annual  earnings  derived  from  the  industry  by  each 
employee. 

4.  The  share  of  the  entrepreneurs  and  other  property  owners  in  the  net 
value  product. 

5.  The  purchasing  power  of  each  of  the  above  items  at  prices  of  1913. 

6.  Changes  in  the  physical  output  per  employee. 

7.  Changes  in  the  physical  output  per  inhabitant  of  the  United  States. 

8.  The  average  number  of  employees  actually  at  work 

9.  The  average  number  of  employees  attached  to  the  industry. 
Frequently  it  has  been  possible  to  determine  from  the  available  figures 

other  facts  of  interest  and  these  facts  have  been  worked  out  to  a  limited 
extent. 

In  some  cases,  however,  since  it  has  not  been  feasible  to  cover  even  the 
standard  list  of  inquiries,  results  have  been  presented  which  are  not  en- 
tirely complete. 

While  an  effort  has  been  made  to  outline  the  general  modus  operandi  in 
most  instances,  it  has  been  found  impracticable  to  present  all  of  the  details. 
Those  especially  interested  in  the  procedure  followed  may  through  personal 
or  written  inquiry  obtain  such  additional  information  as  the  records  of  the 
Bureau  afford. 

§  Ik.  Reduction  of  Values  to  Money  of  Constant  Purchasing  Power 

The  plan  of  attack  decided  upon  has  required  that,  in  most  instance!, 
amounts  be  first  estimated  in  money  of  current  purchasing  power,  or,  i a 
other  words,  in  terms  of  book  income.  The  juice  changes  during  the  latter 
part  of  the  decade  have,  however,  been  so  large  that  comparisons  of  money 
values  for  different  years  tell  practically  nothing  about  the  variations  that 
have  occurred  either  in  the  physical  volume  of  business  or  in  the  quantity 
of  goods  that  the  income  will  buy.  It  has  been  necessary,  therefore,  to 
convert  many  items  into  figures  representing  values  in  money  of  constant 

■ 


PRINCIPLES  AND  METHODS  11 

purchasing  power.  For  tins  purpose,  prices  of  the  year  1913  have  com- 
monly been  taken  as  standard,  this  year  being  the  base  used  by  the  United 
States  Bureau  of  Labor  Statistics  and  by  numerous  other  organizations. 

The  accuracy  of  the  results  obtained  by  such  conversions  evidently 
varies  in  proportion  to  the  correctness  of  the  price  indices  used  as  divisors. 
The  United  Stat''-  Bureau  of  Labor  Statistics  "cost  of  living"  index  ha- 
been  assumed  to  be  satisfactory  for  the  purpose  of  reducing  wages  and 
salaries  to  a  comparable  basis.  Since  this  index  has  not  been  computed 
for  the  years  preceding  1913,  it  has  been  necessary  to  extend  it  back  by 
means  of  a  special  investigation.  As  a  test,  this  Bureau  computed  the 
index  for  the  years  1909  to  1918  and  compared  the  figures  for  the  six  oxer- 
lapping  years  (1913  to  1918)  with  the  Government  figures  just  mentioned.' 
The  fact  that  the  correspondence  between  the  two  index  scries  proved 
very  close  leads  to  the  belief  that  errors  arising  from  the  faultiness  of  this 
index  series  are  not  of  major  importance. 

While  the  general  principle  to  be  followed  in  correcting  the  income  of 
the  working  classes  is  quite  obvious,  the  best  method  of  converting  the 
income  from  property  and  enterprise  to  the  1913  base  is  not  so  easy  to 
determine.  Since  a  considerable  fraction  of  personal  income  of  large  prop- 
erty owners  is  invested  rather  than  immediately  consumed,  the  propriety 
of  using  an  index  of  prices  of  consumption  goods  as  a  correcting  factor  for 
this  type  of  income  may  well  be  questioned.  Careful  consideration  has 
been  given  to  this  point,  and  the  conclusion  has  been  reached  that  no  other 
price  index  can  as  legitimately  be  used  for  this  purpose.  Investments  are 
so  heterogeneous  in  their  nature  that  it  is  difficult  to  say  jusl  what  type 
should  be  considered  and  what  weighl  should  be  assigned  to  each.  Prices 
of  indirect  goods,  whether  stocks  of  corporations  or  commodities  at  whole- 
sale are  certainly  to  a  large  degree,  merely  reflections  of  prevailing  opinions 
of  what  prices  of  direct  (consumption)  goods  are  expected  to  be  at  a  later 
date.  In  so  far  as  this  is  true,  it  appears  more  logical  to  base  a  collecting 
factor  for  the  present  date  upon  prices  having  their  origin  in  expenditure-; 
for  present  consumption  than  upon  those  reflecting  anticipated  future 
needs.  After  all,  expenditures  for  consumption  goods  form  no  mean  pro- 
portion of  the  total  income  of  all  except  the  very  wealthiest  families.  It 
is  believed,  therefore,  that  the  procedure  followed  is  more  logical  than  any 
other  that  can  be  practically  applied. 

It  might  seem  reasonable  to  deal  with  business  savings  by  using  the  same 
method  applied  to  the  personal  income  of  the  property  owner-.  However, 
it  is  evident  that  the  immediate  function  of  the  first  mentioned  type  of 
income  is  to  strengthen  the  business  rather  than  to  purchase  consumption 
goods.    Normally  such  savings  are  invested  in  new  plants  or  equipment. 

i  Sec  Section  2b. 


12  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

For  this  reason,  the  policy  has  been  followed  of  dividing  the  business  sav- 
ings in  each  field  of  industry  by  an  index  believed  to  approximate  the 
changes  in  construction  costs  in  that  branch  of  industry  for  the  same  year. 

§  11.  Average  Annual  Earnings  Versus  Wage  Rates 

While  average  annual  earnings  do  not  always  give  a  good  picture  of  the 
absolute  economic  condition  of  the  employees  in  an  industry  at  a  given 
time,  the3r  are  usually  distinctly  valuable  as  indices  of  change  in  welfare 
from  3rear  to  year.  The  wide  difference  in  nature  between  wage  rates  and 
earnings  should  not  be  overlooked.  Wage  rates  measure  the  price  of  a 
specific  amount  of  labor;  earnings  are  connected  more  closely  with  the 
economic  welfare  of  the  employee  and  his  family.  Earnings  may  be  mater- 
ially reduced  by  a  shortening  of  hours  or  an  increase  in  unemployment  at 
the  same  time  that  wage  rates  are  stationary. 

The  United  States  Census  Bureau  commonly  reports  for  various  indus- 
tries the  total  amount  of  wages  paid  and  the  average  number  of  wage 
earners  emplo3red.  If  the  first  quantity  is  divided  by  the  second,  the 
quotient  represents  approximately  the  average  earnings  of  a  full  time 
worker,1  rather  than  the  average  earnings  of  the  workers  who  normally 
make  their  living  in  this  field  of  endeavor.  To  obtain  average  annual 
earnings,  it  is  necessary  first  to  estimate  for  each  year  the  average  number 
of  workers  attached  to  the  industry  and  then  to  divide  thereby  the  aggre- 
gate of  wages  paid.  Such  an  estimate  has  been  made  for  each  industry. 
The  mode  of  estimating  the  number  of  employees  attached  to,  or  in  other 
words,  normally  making  their  living  in  a  given  industry,  is  discussed  in 
Chapter  2. 

§  lm.  Interest  Payments  on  Consumption  Loans  Not  Deducted  from 

Income 

One  of  the  most  puzzling  theoretical  problems  encountered  daring  the 
investigation  has  to  do  with  interest  on  loans  made  for  the  purpose  of  pur- 
chasing goods  for  direct  consumption.  Does  sound  logic  require  the  deduc- 
tion of  such  interest  pajmients  from  the  gross  income  of  the  borrower, 
when  calculating  his  net  income?  The  practical  bearing  of  the  question  is 
principally  in  connection  with  the  Liberty  Loans  which  represent  billions 
borrowed  from  the  bond  buyers  by  the  citizens  in  general  in  order  to  obtain 
such  immediately  consumable  war  supplies  as  powder  and  shells.  The 
bonds  were  originally  held  by  persons  advancing  money  to  relieve  others 
from  paying  at  that  time  their  respective  proportions  of  the  cost  of  the  war. 
This  advance  of  money  did  not  necessarily  add  anything  to  the  aggregate 

1  A  full  time  worker  is  one  who  works  the  number  of  hours  designated  by  the  employer 
as  "full  time."    For  a  fuller  discussion,  see  §  2d. 


PRINCIPLES  AND  METHODS  13 

of  the  actual  physical  product.  It  merely  meant  that  potential  tax- 
payers retained  too  large  an  income  during  war  lime  on  the  understanding 
that  they  pay  a  bonus,  known  as  interest,  for  the  privilege  of  meeting, 
from  later  income,  their  full  share  of  the  burden.  It  may  be  contended, 
therefore,  that  if  interest  receipts  are  included  in  the  total  income  of  the 
people,  it  is  only  fair  to  deduct  these  amounts  from  the  incomes  of  the 
taxpayers. 

The  opposite  point  of  view  which  has  led  to  the  inclusion  of  these  interest 
payments  in  the  net  value  product  is  that  the  advantage  to  the  taxpayers 
of  being  allowed  to  postpone  the  time  of  payment  was  evidently  felt  to  be 
real  enough  to  make  them  willing  to  pay  money  for  the  privilege.  Further- 
more, if  the  taxpayers  feel  that  the  privilege  of  postponing  the  assumption 
of  their  respective  shares  of  the  burden  is  not  worth  the  interest  charge, 
they  always  have  the  option  of  paying  off  the  debt.  According  to  the  defi- 
nition followed  in  this  study,  an  advantage  of  the  type  just  mentioned  is  a 
service  which  constitutes  income,  and  such  income  must  be  added  to  the 
actual  physical  product  in  order  to  arrive  at  the  net  value  product,  or  in 
other  words,  at  the  total  income  of  the  country. 

Similar  reasoning  applies  with  equal  force  to  interest  on  all  sums 
borrowed  for  the  purpose  of  obtaining  consumption  goods,  whether  the 
borrowing  is  done  by  government  or  by  private  individuals. 

While  the  arguments  just  stated  have  seemed  to  be  weightier  than  any 
on  the  opposite  side,  it  must  nevertheless  be  admitted  that  a  strong  case 
can  be  presented  for  pursuing  the  opposite  course  in  this  computation 
and  for  this  reason,  government  interest  payments  have  been  segregated 
so  that  those  who  prefer  may  subtract  them  from  the  estimates  of  aggre- 
gate national  income  for  the  various  years  (as  presented  in  Volume  I),  in 
order  to  secure  totals  according  with  their  beliefs. 


CHAPTER  2 

PRELIMINARY  STUDIES 

§  2a.  An  Estimate  of  the  Population  of  the  United  States  for  the 

Intercensal  Years 

In  the  course  of  the  present  investigation,  it  has  been  found  essential 
to  have  a  reasonably  accurate  estimate  of  the  population  of  the  United 
States  for  each  of  the  intercensal  years.  The  method  of  interpolation  used 
in  obtaining  the  estimates  presented  in  the  Statistical  Abstract  of  the 
United  States  consists  in  taking  one-tenth  of  the  arithmetic  increase  since 
the  preceding  Census  and  adding  this  amount  to  the  Census  figure  to  find 
the  population  for  the  next  year;  similarly  the  population  for  each  of  the 
succeeding  years  is  calculated  by  adding  this  same  number  to  the  estimate 
for  the  year  previous.  This  process  is  a  straight  line  extrapolation  and  has 
nothing  but  simplicity  to  commend  it,  for,  when  applied,  errors  of  consid- 
erable size  gradually  accumulate  as  changing  conditions  affect  population 
growth.  For  example,  the  Census  shows  a  population  on  January  1, 
1920,  nearly  two  millions  less  than  that  given  by  following  the  method  just 
described.  Is  there  a  more  accurate  way  of  estimating  the  population  in 
advance  of  the  Census?  If  so,  what  is  it?  In  the  hope  of  answering  these 
questions,  the  following  study  has  been  made. 

For  recent  years,  the  Census  Bureau  has  compiled  figures  showing  the 
birth  rate  and  the  death  rate  for  the  registration  area  and  this  registration 
area  has  been  steadily  growing  larger  until  it  now  appears  to  be  fairly  rep- 
resentative of  the  country  as  a  whole.  The  Commissioner  of  Immigration 
presents  annual  statistics  showing  the  number  of  aliens  admitted  and 
departed.  It  seemed  to  the  Staff  of  this  Bureau  that  these  figures  might 
readily  be  used  as  a  basis  for  estimating  the  population,  year  by  year. 
This  view  was  later  endorsed  by  officials  of  the  United  States  Census 
Bureau. 

The  mode  of  procedure  followed  has  been  relatively  simple.  The  birth 
rate  and  the  death  rate  are  given  for  the  calendar  year  while  immigration 
is  reported  for  the  fiscal  year.  By  aid  of  smoothed  curves,  the  birth  and 
death  rates  have  been  estimated  for  the  fiscal  years  and  the  excess  of  the 
birth  rate  over  the  death  rate  has  been  calculated.  The  population  for 
June  30,  1910,  has  been  estimated  according  to  the  method  employed  in 
the  Statistical  Abstract.    The  estimated  excess  of  the  birth  rate  over  the 

14 


PRELIMINARY  STUDIES  15 

death  rate  has  been  applied  to  this  population  to  find  the  increase  dm 
the  excess  of  births  over  deaths  during  the  fiscal  year  ending  June  30,  L911. 
This  amount  plus  the  excess  of  immigration  over  emigration  has  been 
added  to  the  population  estimate  for  June  30,  1910.  and  the  resulting  sum 
has  been  assumed  to  be  the  population  for  June  30,  1911.  This  number 
has  been  taken  as  a  new  base  and  the  process  has  been  repeated  for  the 
next  year — and  so  on  up  to  t  ho  ( Jensus  of  1920.  The  estimate  thus  arrived 
at  for  January  1,  1920,  is  in  error  by  approximately  half  a  million,  or  only 
about  one-fourth  of  the  corresponding  error  resulting  from  the  method  of 
estimate  used  in  the  Statistical  Abstract,  ft  has  been  assumed  that  the 
error  was  equally  distributed  among  all  intercensal  years  and.  by  cor- 
recting in  accordance  with  this  assumption,  a  revised  preliminary  estimate 
of  the  population  for  each  year  has  been  secured. 

Since  the  Census  estimates  of  birth  and  death  rates  for  the  various  years 
are  based  upon  population  estimates  which  are  considerably  too  high  for 
the  last  years  of  the  decade,  it  seems  probable  that  these  reported  birth 
and  death  rates  are  both  somewhat  too  low  for  the  period  just  mentioned. 
Following  this  assumption,  these  rates  have  been  increased  in  the  same 
ratio  that  the  Census  estimate  of  population  bear-  to  the  revised  prelim- 
inary estimate  made  according  to  the  procedure  described  above.  These 
revised  rates  have  been  applied  to  the  revised  preUminary  estimates  of 
population  and  the  products  have  been  taken  as  the  net  additions  to  the 
population  arising  from  the  excess  of  births  over  death-.  By  use  of  these 
increments  and  those  due  to  the  excess  of  immigration  over  emigration, 
the  population  has  been  again  built  up  year  by  year  on  the  basis  of  the  L910 
Census.  The  estimate  obtained  in  this  manner  for  January  1,  1920.  differs 
by  only  414,000  from  the  Census  count  at  that  date. 

This  difference  has  been  apportioned  equally  among  the  various  years 
of  the  decade  giving  as  a  final  estimate  the  figures  shown  in  the  accom- 
1  anying  table. 


16 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

TABLE  2A 


AN  ESTIMATE  OF  THE  POPULATION  OF  THE  UNITED  STATES  FOR  THE  INTERCENSAL 

YEARS 


Estimated  number 
per  thousand  inhabitants 

Estimated  thousands 
added  during  the  fis- 
cal year  ''  to  the  popu- 
lation of  the  U.  S.  by 
excess  of 

Estimated  popula- 
tion of  the  Con- 

Date 

Calendar  year 

Excess  of  births 
over  deaths 

tinental  U.  S. 
(Thousands) 

Births/ 

Deaths  '< 

Cal- 
endar 
year 

Fisca 1 
year  o,c 

Births 

over 

deaths  J 

Immigration 

over 
emigration  k 

June  30  ' 

Jan.  1  m 

1909. 

20 . 2  9 

25. 8o 

25 . 6  9 
25 .4  9 

25.2  9 
25.0  9 
24.9 

24.8 

24.0 
24.4 
24.2 

14.4 

15.0 

14.2 
13.9 

14.1 
13.6 
13.5 

14.0 

14.2 
17  7 
12.9 » 

11.8 

10.8 

11.4 
11.5 

11.1 
11.4 
11.4 
10.8 

10.4 

6.7 

11.3 

12.0 

11.3 

11.1 
11.5 

11.3 
11.3 

11.5 
11.2 

10.6 
10.3 

5   S 
14.6& 

1,078 

1,033 

1,033 
1  088 

1 ,088 
1,110 
1,147 
1,131 

1,084 
1,067 
607 
7716 

544 
818 

512 

402 

815 

769 

50 

126 

216 
19 
21 

716 

90,370 

(91,972d) 

92,229 

93,811 
95,338 

97,278 

99,194 

100,428 

101,722 

103,059 
104,182 
104,847 
106,357 

89,557 

1910 

1911 

1912 

1913 

1914 

1915 

91,340 

(91,97L'(/) 

93,070 

94,600 

96,290 
98,310 
99,870 

1916 

1917 

1918 

1919. 

101,080 

102,410 

1(13,660 
104,310 

1920. 

105,709e 

(I  Corrected  to  account  for  adjustments  in  population  used  as  a  base;  quantities  read  from  a  curve. 

b  This  is  an  estimate  for  the  last  half  of  1919  only. 

c  Ending  June  30  of  the  given  year. 

d  Census  count  for  April  15,  1910. 

e  Census  count  for  January  1,  1920. 

/Census  Bureau,  Birth  Statistics  for  the  Birth  Registration  Area  of  i lie  United  States. 

0  Estimated  from  a  smoothed  curve  produced. 
h  Statistical  Abstract  of  U.  S.  for  1919,  p.  SO. 

i  Preliminary  estimate  by  Census  Bureau. 

J  Rates  in  preceding  column  times  the  population  calculated  by  the  preliminary  method  described  in 
the  text. 

k  From  Statistical  Abstracts  of  the  U.  S. 

1  For  mode  of  derivation,  see  text. 

m  Derived  from  the  immediately  preceding  column  by  aid  of  a  smoothed  curve. 

It  is  true  that  it  would  be  impossible  to  obtain  results  of  the  degree  of 
accuracy  here  presented  were  it  not  for  the  existence  of  a  Census  count  at 
each  extremity  of  the  period  studied.  Nevertheless,  by  following  practi- 
cally the  same  method,  omitting  only  the  adjustments  used  to  make  the 
data  conform  to  the  Census  of  1920,  it  appears  that  the  estimate  for  Jan- 
uary 1,  1920,  would  be  in  error  by  only  about  495,000. 

It  is  not  improbable  that  even  this  degree  of  error  might  be  reduced 
somewhat  if  one  used  monthly  instead  of  annual  figures  for  immigration 
and  the  rales  for  births  and  deaths.  Doubtless  other  refinements  might 
be  introduced.  However,  the  residual  error  after  applying  the  simple 
method  just  presented  is  unimportant  for  most  practical  purposes.  It 
seems,  therefore,  that  this  plan  of  estimating  the  population  of  the  United 
States  for  intercensal  years  is  well  worthy  of  the  consideration  of  statis- 
ticians. 

An  interesting  by-product  of  this  study  is  the  light  thrown  upon  the 
ultimate  apparent  effect  of  the  influenza  epidemic  of  1918  upon  the  popu- 
lation of  the  country.     The  fatality  caused  by  the  disease  was  so  great 


PRELIMINARY  STUDIKS  17 

that  the  population  on  January  1,  1919,  was  but  little  larger  than  on 
June  30,  1918.  This  fact  is  not  at  all  surprising,  but  the  remarkable  feature 
is  that  the  death  rate  during  1919  was  so  much  reduced  (despite  the  exten- 
sive recurrence  of  influenza  in  that  year)  that  the  population  on  January 
1,  1920,  was  probably  little  if  any  less  than  it  would  have  been  had  the 
influenza  epidemic  not  occurred. 

These  figures  lead  one  to  inquire  whether  influenza  ought  not  to  be 
regarded  principally  as  a  hastener  rather  than  as  a  primary  cause  of  the 
death  of  its  victims.  The  only  other  reasonable  explanations  of  the  great 
fall  in  the  death  rate  for  1919  would  seem  to  be  that  influenza  had  a  bene- 
ficent effect  in  stimulating  the  health  of  the  survivors  or  that  some  un- 
known cause  greatly  interfered  with  the  action  of  deadly  diseases  in  1919. 
Neither  of  these  latter  assumptions  seems  as  probable  as  the  hypothesis 
suggested  in  the  original  query. 

§  2b.  An  Index  of  the  Prices  of  Consumption  Goods  Used  by  Manual 

and  Clerical  Workers'  Families 

Data  showing  the  average  annual  money  wages  or  annual  book  income 
received  by  any  class  of  workers  have  little  meaning  unless  such  wages  or 
income  are  compared  with  the  changes  in  the  average  prices  of  the  goods 
usually  bought  by  such  workers.  The  recent  wide  variations  in  the  price 
level  have  made  this  fact  evident  even  to  the  most  casual  observer.  It  is, 
therefore,  essential  that  a  reliable  index  of  prices  paid  for  commodities 
consumed  by  the  working  classes  be  at  hand. 

Recently,  the  United  States  Bureau  of  Labor  has  published  such  an 
index  number  covering  the  years  1913  to  date,  but  it  has  presented  none 
for  the  years  1909  to  1912.  The  index  number  worked  out  by  the  National 
Bureau  of  Economic  Research  is  the  result  of  an  attempt  to  fill  in  this  gap. 
Unfortunately,  complete  data  are  not  available  for  all  fields;  hence  it  has 
been  necessary  to  use  estimates  of  doubtful  value  in  place  of  actual  figures 
for  certain  items.  For  example,  no  figures  showing  the  trend  of  house 
rents  for  the  earlier  half  of  the  decade  have  been  discovered.  Other  missing 
items  are,  fortunately,  mostly  those  of  very  minor  importance. 

In  constructing  the  price  index,  the  classification  made  by  the  United 
States  Bureau  of  Labor  has  been  followed  closely,  all  commodities  being 
divided  into  six  general  classes: — namely,  Food,  Clothing,  House  Furnish- 
ings, Housing,  Fuel  and  Light,  and  Miscellaneous.  In  the  case  of  each 
group,  the  index  has  been  constructed  to  cover  the  period  1909-1919.  the 
year  1914  being  used  as  the  base  year.  In  deriving  the  index  number  here- 
with presented,  recourse  has  been  had  to  two  apparently  distinct  but  actu- 
ally related  methods  of  computation;  first,  the  comparison  of  aggregates 
of  actual' prices  based  upon  the  estimated  quantities  used  in  the  base  year; 


IS  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

second,  the  weighted  arithmetic  average  of  relatives,  the  weights  used 
being  likewise  the  quantities  assumed  to  have  been  used  in  the  base  year. 
Since  the  same  base  year  and  the  same  weights  have  been  used,  the  two 
methods  necessarily  give  identical  results — as  can  easily  be  demonstrated 
by  simple  arithmetic. 

The  reason  for  varying  the  method  lies  in  the  fact  that  the  original  data 
were  partly  in  the  form  of  actual  prices  and  partly  in  terms  of  relative 
numbers  only.  In  the  case  of  fuel  and  light,  for  example,  the  Bureau  of 
Labor  reports  furnish  relative  numbers  from  1909  to  1914  and  actual  prices 
from  1914  to  date.  Under  such  circumstances,  convenience  dictated  the 
use  of  the  particular  method  of  computation  that  involved  least  labor. 
In  the  main,  the  procedure  was  as  follows:  Aggregates  of  prices  were 
computed  for  the  sub-groups;  these  aggregates  were  reduced  to  relative 
numbers;  and  these  relatives  were  then  weighted  and  combined  to  give 
the  final  index. 

Food. 

For  the  food  group,  the  index  number  constructed  by  the  Bureau  of 
Labor  and  published  in  the  Monthly  Labor  Review  each  month  seems  to  be 
entirely  satisfactory  and  hence  has  been  used.  In  recent  years,  that  index 
number  is  based  upon  the  year  1913.  For  our  purposes,  it  has  been  neces- 
sary to  adjust  it  to  the  common  1914  base.  This  has  been  done  by  dividing 
each  annual  index  by  the  index  number  given  for  1914  and  multiplying 
the  results  by  100. 

Clothing. 

The  articles  of  clothing  included  in  this  group,  and  the  weights  used  are 
based  upon  the  list  given  by  the  Bureau  of  Labor  in  the  Monthly  Labor 
Review  for  November,  1919,  pp.  2  to  14 — a  list  showing  the  actual  appor- 
tionment of  expenditures  for  clothing  by  working  families  of  Northern 
and  Southern  Cities.  Since  it  is  not  easy  to  find  quotations  of  clothing 
prices  which  are  comparable  from  year  to  year,  it  was  decided  to  have 
recourse  to  figures  quoted  by  some  mail  order  house,  for  by  use  of  the  cata- 
logue, it  is  possible  to  identify  with  a  fair  degree  of  accuracy  the  same 
article  in  different  years.  Sears,  Roebuck  &  Company  were  kind  enough 
to  place  a  series  of  their  catalogues  at  our  disposal.  From  these  were 
selected  forty-three  articles  of  men's  clothing  and  forty-four  articles  of 
women's  wear,  which  seemed  to  be  practically  identical  in  quality  through- 
out the  decade  under  consideration.  The  price  of  each  article  was  then 
multiplied  by  the  average  number  of  units  purchased  per  family  per  year, 
as  shown  by  the  Bureau  of  Labor  study  above  mentioned.  As  the  figures 
are  given  for  Northern  and  Southern  cities  separately,  an  average  weight 


PRELIMINARY  STUDIES  19 

for  the  country  was  made  by  weighting  the  Northern  cities  two  and  the 
Southern  cities  one,  the  larger  weighting  being  given  to  the  North  because 
that  section  is  so  much  more  populous. 

A  total  value  for  each  article  having  been  thus  calculated,  the  values  for 
the  various  articles  were  next  summated  in  order  to  obtain  an  aggregate 
value  for  all  articles  in  the  given  year.  The  aggregate  value  for  1914  was 
then  taken  as  a  base  and  called  100,  and  indices  for  other  years  were  de- 
rived by  a  comparison  of  the  relative  sizes  of  the  aggregate  values. 

House  Furnishings. 

As  in  the  case  of  clothing,  the  weighting  system  is  based  upon  a  list  pub- 
lished by  the  Bureau  of  Labor  1  showing  the  average  annual  expenditure 
by  working  families  in  the  cities  of  the  United  States  for  various  articles 
of  furniture  and  the  number  of  each  item  of  furniture  purchased  each  year 
by  the  average  family.  As  in  the  case  of  clothing,  the  prices  have  been 
taken  from  the  annual 2  catalogues  of  Scars,  Roebuck  &  Company.  The 
method  of  computation  used  is  identical  with  that  already  described  for 
clothing. 

Fuel  and  Light. 

In  working  up  an  average  index  of  prices  of  fuel  and  light,  it  was  possible 
to  get  satisfactory  quotations  for  coal  (anthracite  and  bituminous),  man- 
ufactured gas,  and  electricity. 

The  prices  on  January  15th  and  July  loth  of  each  year  from  1914  to 
1919  for  coal  in  ton  lots  for  household  use  are  published  in  the  Monthly 
Labor  Review.3  Separate  quotations  are  given  for  bituminous  coal  and 
two  kinds  of  anthracite,  namely,  stove  and  chestnut.  The  actual  prices 
for  the  years  1914  to  1919  were  reduced  to  relatives  on  the  1914  base. 
Relative  prices  for  each  of  the  three;  items  had  already  been  computed  by 
the  Bureau  of  Labor  Statistics  for  the  years  1909-19 14,4  and  were  simply 
transcribed  as  quoted. 

The  mean  of  the  relatives  for  stove  and  chestnut  coal  was  used  as 
representative  for  anthracite.  The  relative  numbers  for  anthracite  and  for 
bituminous  coal  were  then  weighted  by  the  respective  annual  costs  per 
average  family  in  the  year  1919  for  the  two  varieties  of  coal  as  shown  by 
figures  published  in  the  Monthly  Labor  Review? 

Manufactured  Gas:    The  average  net   price  per  1000  cubic  feet  of  gas 

1  Monthly  Labor  Review,  Jan.  1920,  pp.  27  34. 

*Clothng  prices  were  taken  from  the  spring  catalogue  issued  Jan.  1st,  and  furniture  prices 
from  the  autumn  catalogue  issued  Sept.  1.  The  indices  fur  each  group  have  Keen  adjusted 
to  the  middle  of  the  year  before  computing  the  average  price  index  for  all  commodities. 

3  Monthly  Labor  Review,  March,  1920,  p.  lY.i. 

1  Statistical  Abstract  of  the  U.  S.,  L915,  p.  531,  table  .'500. 

'  Monthly  Labor  Review,  Sept.  1920,  pp.  92-99. 


20  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

was  computed  by  taking  quotations  of  the  price  of  gas  from  a  number  of 
widely  distributed  cities  x  and  getting  the  average  of  these  quotations. 
These  averages  wore  reduced  to  relatives  on  the  1914  base.  The  annual 
cost  of  gas  per  average  family  per  year  was  ascertained  from  the  Bureau 
of  Labor  Statistics  report 2  and  the  relative  prices  of  gas  were  weighted  by 
this  figure. 

Electricity:  Estimates  of  the  average  price  per  kilowatt  hour  of  elec- 
tricity used  in  residences  in  New  York  City  were  obtained  from  the  New 
York  Edison  Company,  and  these  were  reduced  to  relative  prices  on  the 
1914  base.  As  in  the  case  of  coal  and  gas  the  average  cost  per  family 
per  year  was  derived  from  information  published  in  the  Monthly  Labor 
Review 2  and  the  relative  prices  of  electricity  were  weighted  by  this 
figure.  The  sum  of  the  weighted  relatives  for  these  various  items  making 
up  the  fuel  and  light  group,  was  divided  by  the  sum  of  the  weights  used 
and  the  resulting  figure  was  taken  as  the  index  for  this  group. 

Housing 

In  their  recent  investigation  into  the  cost  of  living,  the  National  Indus- 
trial Conference  Board  made  a  study  of  changes  in  the  cost  of  Shelter  3 
during  the  period  1914-1919,  using  1914  as  the  base  year.  The  results  of 
this  study  are  charted  in  their  report,  and  from  this  chart  have  been  read 
the  index  numbers  used  in  making  up  our  average  index. 

Careful  search  has  failed  to  bring  to  light  any  information  whatever 
concerning  the  course  of  house  rents  before  1914.  As  the  years  1909  to 
1914  were  characterized  by  a  relatively  stable  level  of  prices,  it  has  seemed 
best  to  assume  that  house  rents  remained  unchanged  during  this  interval 
and  hence  to  use  100  as  the  index  for  each  year. 

Miscellaneous  Expenditures. 

In  constructing  the  index  number  for  the  miscellaneous  group,  again 
the  weights  were  based  upon  the  information  given  in  the  Monthly  Labor 
Review.*  After  much  difficult}',  approximate  price  quotations  were 
secured  for  thirteen  items  of  this  list,  namely,  railway  passenger  fares, 
telephone  rates,  street  car  fares,  automobile  repairs,  automobile  tires, 
gasoline,  moving  picture  tickets,  newspapers,  magazines,  college  tuition, •' 
room  and  board  at  college/'  hotel  rates  for  lodging,"'  and  retail  prices 
of  tobacco,  and  these  items  were  assumed  to  be  fairly  representative  of 
the  miscellaneous  group. 

'  Statistical  Abstract  of  the  U.  S.,  1917,  p.  5.",);   1919,  p.  576. 

2  Monthly  Labor  Review,  Sept.  1920,  pp.  92-99. 

1  National  Industrial  Conference  Board,  Research  Report,  No.  28,   May,   1920. 

'  Nov.  1919,  pp.  15-19. 

5  These  items  are  of  minor  importance  and  hence  are  weighted  lightly. 


PRELIMINARY  STUDIES  21 

The  actual  prices  of  each  article  were  reduced  to  relatives  on  the  base 
1914.  The  relatives  were  then  weighted  by  the  average  cost  per  family 
for  each  item  as  shown  by  the  Bureau  of  Labor  study  for  1919.  The  sum 
of  the  products  for  each  year  was  divided  by  the  sum  of  the  weights  for 
the  same  year  in  order  to  arrive  at  the  index  number  for  that  year. 

Average  Index  for  all  Expenditures  for  Consumption  Goods. 

The  average  indices  for  the  separate  groups  having  been  obtained  for 
the  various  years  by  the  methods  above  described,  the  next  step  was  to 
combine  them  into  an  index  representing  the  entire  expenditures  for  con- 
sumption goods.  This  combination  was  effected  by  multiplying  the  indices 
by  weights  representing,  for  22  cities  in  the  United  States  in  which  the 
United  States  Bureau  of  Labor  Statistics  conducted  investigations  in  1919, 
the  per  cent  of  all  expenditures,  devoted  to  each  class  of  items.1  The 
actual  numbers  used  as  weights  are  as  follows: 

Item  of  expenditure  per  cent  of  total 

expenditure 
All  purposes  100  0 

Food 38.2 

Clothing 16.6 

Housing 13.4 

Fuel  and  Light 5.3 

House  Furnishings 5.1 

Miscellaneous .  .  . 21.3 

The  sum  of  the  products  for  each  year  was  divided  by  the  sum  of  the 
weights  for  the  same  year  to  obtain  the  average  index  for  that  year.  The 
final  results  of  the  study  are  presented  in  the  accompanying  table. 

The  fact  that  the  indices  from  1911  to  1919  correspond  so  closely  to 
those  computed  by  the  Bureau  of  Labor  Statistics  makes  it  appear  proba- 
ble that  the  indices  for  the  years  1909  to  1913  are  also  not  far  from  the 
truth.  The  only  important  reason  for  suspecting  any  greater  margin  of 
error  in  the  earlier  years  is  the  absence  of  rent  data  for  that  period.  How- 
ever, it  is  improbable  that  there  were  variations  in  this  relatively  small 
item  sufficiently  great  to  vitiate  materially  the  average  indices  for  the 
whole  group.  It  seems  safe,  therefore,  to  use  the  figures  presented  as  a 
representative  index  of  the  average1  prices  of  those  consumption  goods  pur- 
chased by  the  working  classes  of  our  population  during  the  different  years 
of  the  decade  under  consideration. 

1  Monthly   Labor    lit  vine,   October,    1920,   p.   65. 


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24 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


Since  the  facilities  of  the  United  States  Bureau  of  Labor  Statistics  are 
so  much  more  extensive  than  any  at  the  command  of  this  Bureau,  it  seems 
fair  to  assume  that  their  index  number  is  the  better  one  to  follow  for  the 
period  actually  covered,  and  hence,  in  the  practical  application  of  the  index 
number  for  the  purpose  of  reducing  the  book  income  of  the  working  classes 
to  terms  of  purchasing  power,  the  index  number  shown  in  Table  2C  is  the 
one  which  will  actually  be  used.  This  is  simply  the  Bureau  of  Labor  Sta- 
tistics index  carried  backward  to  1909  by  assuming  that,  for  the  earlier 
years,  it  varies  in  the  same  ratio  as  the  index  for  all  consumption  goods 
shown  in  the  first  column  of  Table  2B. 

TABLE  2C 

A  COMPOSITE  INDEX  NUMBER  SHOWING  THE  AVERAGE  PRICES  OF 
CONSUMPTION  GOODS  USED  BY  MANUAL  AND  CLERICAL  WORKERS, 
THE  INDEX  BEING  BASED  UPON  INVESTIGATIONS  BY  THE  UNITED 
STATES  BUREAU  OF  LABOR  AND  THE  NATIONAL  BUREAU  OF  ECO- 
NOMIC RESEARCH 


Middle  of 
Year 

Index  of  Average  Retail  Prices 

Base  1913 

1909. 

95 . 5  a 

1910.  .  .  . 

97. 8  a 

1911 

98. 4 « 

1912 

99.4  a 

1913 

100 .     b 

1914. .  .  . 

101.     b 

1915 

103.    b 

1916. . . 

110.     b 

1917 

129.    b 

1918. 

158 .    b 

1919. ...                

177.3c 

1920 

216.5c 

a  National  Bureau  of  Economic  Research;  derived  from  Table  2B. 

b  U.  S.  Bureau  of  Labor,  Monthly  Labor  Review,  June,  1920,  p.  79. 

r  U.  8.  Bureau  of  Labor,  Monthly  Labor  Review,  October,  1920,  p.  65. 

The  more  complete  data  are  presented  in  the  hope  that  they  may  be  of 
assistance  to  other  workers  in  this  field. 

§  2c.  Price  Indices  of  Consumption  Goods  Used  by  the  Well-to-do 

Classes 

Many  studies  have  been  made  of  the  changes  that  have  occurred  in  the 
prices  of  consumption  goods  bought  by  the  "working  people,"  but  this 
Bureau  has  not  succeeded  in  discovering  any  index  showing  variations  in 
the  prices  of  those  commodities  consumed  by  the  wealthier  classes.    Yet, 


, 


PRELIMINARY  STUDIES  25 

in  any  study  of  the  changes  in  the  relative  welfare  of  the  different  sections 
of  the  population,  it  is,  of  course,  imperative  that  such  an  index  be  avail- 
able, especially  in  times  of  rapidly  shifting  price  levels  when  quantities 
shown  in  terms  of  money  value  are  almost  meaningless.  With  the  hope  of 
filling  the  gap  in  the  available  statistics  along  this  line,  the  computation 
of  an  index  of  the  above  mentioned  type  was  undertaken. 

It  was  found  that  the  most  feasible  form  of  procedure  was  first  to  obtain 
relative  prices  for  a  number  of  specific  classes  of  commodities  and  then  to 
compute  therefrom  a  weighted  arithmetic  average  index  number,  using  as 
constant  weights  the  relative  expenditures  in  a  given  year  for  each  class 
of  articles.  The  first  problem,  then,  was  to  estimate  the  proportion  of 
expenditures  going  for  each  purpose. 

Recently,  the  Federal  Reserve  Board  made  a  study  of  the  apportion- 
ment of  income  made  by  its  employees.  The  relative  distribution  there 
shown  differs  somewhat  from  that  known  to  exist  for  wage  workers.  It 
therefore  seemed  reasonable  to  suppose  that  the  apportionment  of  their 
expenditures  by  persons  having  still  higher  incomes  would  diverge  still 
more  widely  from  that  of  the  wage  earners.  With  a  view  to  obtaining  a 
little  more  light  on  the  question,  a  number  of  persons  of  means  were  re- 
quested by  the  present  investigator  to  state  their  views  as  to  the  respec- 
tive shares  of  income  which  were,  in  general,  spent  by  families  having  total 
expenditures  solely  for  consumption  goods  amounting  to  85,000,  810,000, 
820,000,  and  850,000,  for 

1.  Food  for  themselves  and  servants. 

2.  Clothing. 

3.  Fuel  and  light, 

4.  Housing,  including  an  estimated  rent  for  a  residence  occupied  by  the 
owner. 

5.  Money  wages  of  servants. 

6.  Automobiles  and  yachts,   including  maintenance  and  depreciation. 

7.  All  other  purposes. 

Only  about  a  dozen  of  the  replies  received  were  in  a  form  which  answered 
the  requirements.  However,  from  even  this  limited  number,  it  is  possible 
to  discern,  as  total  expenditures  change,  certain  rather  definite  trends  in 
the  percentages  of  income  spent  for  the  specified  purposes.  From  these 
indications,  curves  were  plotted  for  each  of  the  various  groups,  and  such 
adjustments  were  made  as  were  necessary  to  bring  the  totals  to  unity. 
The  final  estimates  appear  in  Table  2D. 


26  THE  ESTIMATE  BY  SOURCES  OE  PRODUCTION 

TABLE  2D 


\N  ESTIMATE  OF  THE  PERCENTAGES  OF  TOTAL  EXPENDITURES  FOR 
CONSUMPTION  GOODS  MADE  FOR  THE  PURPOSES  SPECIFIED 

Estimate  based  on  Study  by  Federal  Reserve  Board  of  Expenditures  of  Its  Employees 
and  upon  Replies  to  a  Few  Questionnaires  Submitted  by  this  Bureau 


Total  ex- 
penditures 
annually 
for  con- 
sumption 
goods 

Total  of 

per  cents 

Food  for 

family, 

guests  and 

servants 

Housing, 

including 

rent  of 

homes 

owned 

Fuel 
and 
light 

Auto- 
mobiles, 
yachts 
and  their 
mainte- 
nance 

Wages  of 
servants 

Clothing 

Miscellan- 
eous, in- 
cluding 
house 
furnishings 

$  5,000 

100.0 

27.2 

18.0 

3.3 

9.2 

4.5 

14.3 

23.5 

10,000 

100.0 

19.2 

18.3 

3.2 

9.8 

9.5 

11.9 

28.1 

15,000 

100.0 

15.8 

18.6 

3.0 

10.0 

11.5 

10.3 

30.8 

20.000 

100.0 

13.7 

18.9 

2.8 

10  0 

12.3 

9.3 

33.0 

25,000 

100.0 

12.0 

19.2 

2.6 

10.0 

12.7 

8.7 

34.8 

30,000 

100.0 

10.4 

19.5 

2.4 

10.0 

12.9 

8.1 

36.7 

35,000 

100.0 

9.1 

19.8 

2  2 

10.0 

13.1 

7.6 

38.2 

40,000 

100.0 

7.9 

20.1 

2.1 

10.0 

13.3 

7.1 

39.5 

45,000 

100.0 

6.9 

20.4 

1.9 

10.0 

13.5 

6.7 

40.6 

50,000 

100.0 

6.1 

20.7 

1.8 

10.0 

13.7 

6.4 

41.3 

Were  the  weights  the  most  vital  factor  in  determining  the  trend  of  the 
prices  under  consideration,  it  would  be  sheer  folly  to  trust  an  estimate 
based  upon  such  scanty  data  as  those  upon  which  the  tables  just  presented 
rest.  However,  it  is  a  well-known  fact  that  prices  of  different  classes  of 
commodities  do  not  move  in  entirely  independent  paths  but  fluctuate  in 
somewhat  similar  ways  at  the  same  time.  Since  this  is  true,  it  follows  that 
even  a  large  change  in  the  weights  is  likely  to  produce  no  radical  effect 
upon  the  average  index.  Hence,  if  the  above  estimates  are  even  approx- 
imately correct,  there  is  no  reason  for  believing  that  they  will  not  serve 
well  enough  as  weights  for  the  purpose  intended. 

Our  particular  needs  require  an  index  applicable  to  groups  of  persons  who 
receive  incomes  from  property.  The  industries  of  transportation,  manu- 
facturing, and  mining  are  largely  operated  by  corporations  and  the  own- 
ers receive  their  income  therefrom  mainly  in  the  form  of  dividends  or  bond 
interest.  It  appears  from  the  Statistics  of  Income  for  1917,  published  by  the 
Bureau  of  Internal  Revenue,  that  the  median  net  income  of  those  re- 
ceiving corporate  dividends  is  around  825,000.  Since  that  date,  prices  and 
incomes  have  increased  materially,  and  it  appears  probable  that  today  a 
family  of  the  same  social  class  would  receive  enough  more  income  to  enable 
them  to  spend  $25,000  for  consumption  goods  in  addition  to  what  savings 
they  would  make.  For  these  particular  industries,  it  seems  best,  therefore, 
in  computing  an  index  for  the  purpose  of  reducing  the  money  income  of 
the  propertied  classes  to  a  basis  of  constant  purchasing  power,  to  use  the 


PRELIMINARY  STUDIES  27 

weights  indicated  in  Table  2D  as  applicable  to  the  $25,000  class.  When, 
however,  certain  other  industries  are  considered,  it  is  evident  that  the 
average  entrepreneur  does  not  have  an  income  in  any  way  approximating 
that  of  the  average  owner  of  the  stock  of  the  corporations  controlling  the 
highly  organized  fields.  Nevertheless,  these  people  may  be  sufficiently 
wealthy  to  cause  their  expenditures  to  differ  materially  in  their  distribu- 
tion from  those  of  the  working  classes.  For  the  propertied  classes  deriving 
their  livelihood  from  such  industries,  it  seems  probable  that  the  weights 
based  upon  average  expenditures  of  $5,000  per  annum  are  more  appropri- 
ate. The  relative  prices  shown  in  Table  2E  have  therefore  been  multiplied 
by  the  weights  representing  the  $5,000  class,  and  the  weighted  average 
index  thus  derived  is  shown  in  Table  2G. 

The  division  of  expenditures  shown  in  Table  2D  is  not  carried  far  enough 
to  furnish  an  appropriate  weight  for  each  of  the  relative  prices  actually 
available.  It  has  been  necessary,  therefore,  to  subdivide  some  of  the  orig- 
inal groups  of  commodities  in  order  to  arrive  at  the  weights  used  in  Tables 
2E  and  2F.  This  process  of  subdivision  has  perforce  been  based  upon 
rough  estimates,  as  no  accurate  information  on  the  subject  has  been  dis- 
covered. 

Price  data  are  available  only  for  certain  classes  of  expenditures,  hence 
these  classes  have  necessarily  been  used  as  typical  of  all  articles  or  services 
purchased.  The  price  estimates  have  been  collected  from  a  variety  of 
sources  and  have  been  computed  with  considerable  care  except  in  the  case 
of  a  few  relatively  unimportant  items.  In  one  or  two  items  such  as,  for 
example,  automobile  repairing,  the  estimates  are  only  moderately  accurate, 
but  they  are  the  best  obtainable. 

For  the  groups  entitled  "Food,"  "Clothing,"  "House  Furnishings," 
"Fuel  and  Light,"  and  "Housing,"  the  same  indices  have  been  used  that 
were  computed  for  the  same  groups  of  goods  used  by  the  laboring  classes. 
It  is,  of  course,  true  that  the  articles  purchased  by  the  wealthy  in  the  way 
of  clothing,  housing,  and  house  furnishings,  are  of  a  very  different  quality 
than  are  those  used  by  the  poorer  classes.  No  reason  is  apparent,  however, 
why  the  higher  priced  articles  should  on  the  average,  vary  in  a  fashion 
much  different  from  that  characteristic  of  the  cheaper  goods.  In  the 
absence  of  any  definite  knowledge  concerning  this  matter,  and  in  view  of 
the  paucity  of  data,  it  was  felt  that  it  would  be  a  useless  expenditure  of 
effort  to  attempt  to  make  the  indices  specified  fit  more  closely  the  prices 
of  goods  bought  by  the  wealthier  classes  only. 

The  data  upon  which  several  of  the  price  indices  for  the  minor  groups 
are  based  are  too  heterogene< >us  and  irregular  to  give  one  great  confidence 
in  their  accuracy. 

For  the  reasons  just  stated,  it  is  clear  that  the  final  average  index  must 


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30  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

be  regarded  as  but  a  crude  approximation  to  the  truth.  It  seems  to  be 
established,  however,  that  the  prices  of  commodities  bought  by  the  wealth- 
ier classes  did  not  rise  quite  as  sharply  during  1917,  1918,  and  1919  as  did 
the  prices  of  those  articles  consumed  by  the  poorer  fraction  of  our  popu- 
lation. It  is  believed  that  the  indices  shown  in  Table  2E  will  at  least 
serve  somewhat  better  in  reducing  the  money  income  of  the  wealthy  to 
terms  of  purchasing  power  than  would  the  Bureau  of  Labor  Statistics 
index  of  the  "cost  of  living"  of  the  working  classes  and  distinctly  better 
than  would  any  index  of  wholesale  prices.  Of  course  neither  of  the  latter 
types  of  indices  have  been  devised  for  this  purpose,  and  hence  cannot  be 
expected  to  give  satisfactory  results  if  thus  misapplied. 

The  tables  on  pp.  28  to  31  summarize  the  results  obtained. 


TABLE  2F 

WEIGHTS  USED  IN  COMPUTING  THE  INDEX  OF  PRICES  OF  COMMOD- 
ITIES CONSUMED  BY  PERSONS  SPENDING  $5,000  ANNUALLY  FOR 
CONSUMPTION  GOODS 

Automobiles 4.0 

Automobile  Repairs 2.1 

Automobile  Tires 2.0 

Clothing 15.8 

College  Room  and  Board 1.1 

College  Tuition 0.4 

Food 30.0 

Fuel  and  Light 3.6 

Gasoline 2.0 

House  Furnishings 6.1 

Housing 19.9 

Hotel  Bills 0.7 

Magazines 0.3 

Moving  Picture  Shows 1.2 

Newspapers 0.4 

Railway  Passenger  Fares 2.2 

Servants'  Wages 5.0 

Street  Car  Fares 0.8 

Telephones 0.6 

Theatre  Seats 0.9 

Tobacco 0.9 

Total 100.0 


, 


PRELIMINARY  STUDIES 


:il 


TABLE  2G 


A  COMPARISON  OF  THE  ESTIMATED  INDICES  OF  THE  AVERAGE  PRICES 
OF  CONSUMPTION  GOODS  USED  BY  DIFFERENT  CLASSES  OF  THE 
POPULATION  OF  THE  CONTINENTAL  UNITED  STATES 


Indices  c  of  Prices  of  Consumption  Goods  Used  by 

Middle 

of  the 

Year 

Manual  and  clerical 
workers'  families  a 

Families  spending 
$5,000  per 

annum  on  consumption 
goods 

Families  spending 
$25,000  per 
annum  on  consumption 
goods  b 

1909 

.955 

.978 
.984 
.994 

1.00 
1.01 

1.03 
1.10 

1.29 
1.58 
1 .  773 
2.165 

.956 
.977 
.984 
.999 

1 .  000 
1.013 

1 .  002 
1.088 

1.252 
1.448 
1.669 

.973 

1910 

1911 

.988 
.995 

1912 

1.000 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

1.000 

1.010 

.996 

1 .  074 

1.198 
1 .  364 
1.628 

"  See  Table  2C;  indices  divided  by  100. 

b  See  Table  2E;  indices  divided  by  index  shown  there  for  L913. 

c  Prices  of  1913  =  1 .000 


§  2d.  An  Estimate  of  the  Industrial  Distribution  of  the  Gainfully 
Employed  Persons  in  the  Continental  United  States 

I.  The  Total 

The  total  number  of  gainfully  employed  in  the  United  States  as  reported 
by  the  Census  of  Occupations  includes  a  large  number  of  farmers'  wives 
and  children  who  do  a  certain  amount  of  agricultural  work  on  the  home 
farm. 

Nearly  all  members  of  farmers'  families  do  some  work  on  the  home 
farm  or  in  the  house  and  how  many  of  them  should  be  regarded  as  "gain- 
fully employed"  is  hard  to  say.  The  proportion  so  reported  has  varied 
from  one  census  to  the  next  with  the  wording  of  the  instructions  and  from 
one  district  to  another  at  every  census  with  the  interpretation  put  upon 
their  instructions  by  different  enumerators.  Hence  the  figures  for  farmers' 
wives  and  children  at  work  on  the  home  farm  have  no  consistent  meaning, 
and  this  item  in  the  classification  of  occupations  has  been  excluded  from 
all  the  following  estimates. 

The  ratio  of  the  number  of  remaining  male  workers  to  the  total  popu- 
lation has  been  calculated  for  each  Census  year  and  the  curve  obtained  by 


32  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

plotting  these  figures  has  been  carried  forward  from  1910  to  1918,  an  allow- 
ance being  made  for  the  practical  cessation  of  immigration  during  the  war 
years  and  for  the  addition  in  1918  of  a  considerable  number  of  school  boys 
to  the  list  of  gainfully  employed.  By  using  the  ratios  obtained  from  this 
curve  as  multipliers,  products  have  been  obtained  which  probably  approxi- 
mate the  numbers  of  males  gainfully  employed  in  each  year. 

For  a  few  industries,  it  has  been  possible  to  obtain  annual  ratios  of  the 
number  of  females  to  the  number  of  male  employees.  These  ratios  have 
been  adjusted  to  conform  to  the  Census  ratios  for  all  industries  in  the 
Census  years.  In  the  intervening  years  the  numbers  of  male  workers 
have  been  multiplied  by  the  adjusted  ratios  in  order  to  obtain  an  estimate 
for  each  year  of  the  number  of  females  working  for  gain.  The  addition 
of  the  estimated  number  of  females  to  the  number  of  males,  of  course, 
gives  the  figures  for  the  total  number  of  persons  gainfully  employed. 

This  number  is  evidently  composed  of  entrepreneurs  *  and  employees. 
The  procedure  adopted  has  been  to  estimate  the  number  of  the  former 
and  subtract  it  from  the  total  in  order  to  obtain  the  number  working  for 
wages  or  salaries.  The  final  results  appear  in  the  three  top  lines  of  Table 
2J. 

II.  Entrepreneurs 

Any  estimate  of  the  number  of  entrepreneurs  in  the  various  industrial 
fields  must  be  based  primarily  upon  the  reports  of  the  United  States  Cen- 
sus since  State  Reports  seldom  throw  any  light  upon  the  matter.  The 
Census  classifies  the  gainfully  employed  only  by  occupations  but  these 
figures  have  been  used  as  the  basis  of  careful  though  necessarily  somewhat 
inaccurate  estimates  of  the  number  of  entrepreneurs  in  each  industry. 
In  most  instances,  the  occupation  of  an  entrepreneur  indicates  the  indus- 
trial field  to  which  he  is  to  be  assigned,  hence  the  occupational  classifica- 
tion is  reasonably  satisfactory  for  the  purpose  at  hand.  For  a  number  of 
important  industries  such  as  mining,  manufacturing,  and  agriculture, 
the  reports  for  the  separate  industries  record  the  number  of  entrepreneurs 
in  each.  The  estimates  for  the  other  industrial  fields  have  been  based  upon 
the  Census  of  Occupations.  The  estimates  thus  made  for  the  various 
occupations  have  been  added  to  obtain  the  probable  numbers  engaged  in 
all  occupations  in  the  Census  years.  The  respective  ratios  of  the  number 
of  entrepreneurs  to  the  total  population  have  been  plotted  for  the  various 
Census  years  and  the  curve  thus  obtained  has  been  projected  to  1920. 
By  applying  the  ratios  read  from  this  projected  curve  to  the  estimated 

1  The  word  "entrepreneur"  is  used  in  the  customary  sense — namely,  as  a  person  conduct- 
ing a  business  at  his  own  risk.  Lawyers,  peddlers,  merchants,  farmers,  and  independent 
manufacturers  are  typical  entrepreneurs.  Managerial  employees  are  not  included  under 
this  term. 


PRELIMINARY  S'lTDIES 


33 


populations  for  the  other  years,  products  have  beeD  obtained  which  are 
believed  to  represent  with  some  approach  to  the  truth  the  total  number  of 
entrepreneurs  in  each  of  the  intercensal  years.  The  estimates  for  the  years 
since  1910  have  been  strengthened  by  the  figures  in  the  Censuses  of  Man- 
ufactures for  1914  and  1919,  in  the  Censuses  of  the  Electrical  Industries 
for  1912  and  1917,  and  in  the  Census  of  Agriculture  for  1919.  Since  the 
Census  of  Occupations  for  1920  has  not  yet  been  published,  it  has  been 
necessary  to  assume  that  the  apportionment  of  the  remaining  number  of 
entrepreneurs  among  the  other  industries  has  remained  relatively  the 
same  as  in  1909. 

TABLE  2H 

\X  ESTIMATE  OF  THE  NUMBER  OF  ENTREPRENEURS  NORMALLY  OCCUPIED  IN  THE 

PRINCIPAL  INDUSTRIAL   FIELDS 


Industry 


All  industries  . 
Agriculture. .  .  . 

Mining 

Laundry 

Construction.  . 
Han  1  trades..  . 

1  i  itory 

Transportation 

Banking 

Unclassified 
industries.  .  . 


Thousands  Attached  to  the  Industry  in  the  Year 


1909      1910 


9,550 

6,330 

35 

16 

175 

228 

273 

29 

1 

2,460 


9,617 

6,362 

34 

20 

171 

230 

272 

29 

4 

2,492 


1911      1912      1913      1914      1915      1910      L917 


9  C4S 

6,376 

33 

25 

170 

231 

270 

29 

4 


9,679 

6,388 

32 

30 

17(1 

233 

268 

29 

4 

2.525 


9,710 

6,400 

31 

34 

165 

235 

252 

29 

4 

2.5(10 


9,743 
6,410 

30 
34 

1 55 
237 
263 

in 
4 

2,582 


9,746 

6,418 

29 

34 

145 

239 

.'.id 

28 

4 

2,589 


9,737 
6,425 

."I 

35 

135 

2  !9 

256 

2  s 

4 


9.752 

0.43-' 

28 
36 

1 31 ) 

I'll 

253 

28 

4 

2.597 


1918 


•1.757 

6,438 

27 

36 

120 

244 

250 

2s 

1 

2,610 


1919      1920 


9,760 

6,443 

26 

36 

130 
254 

246 

2  s 

I 

2,593 


9,758 

6,448 

26 

37 

1211 

263 

212 

28 

4 

2.590 


III.  Employees 

In  estimating  the  number  of  employees  in  a  given  industry,  it  is  neces- 
sary to  distinguish  sharply  between  the  number  of  persons  actually  at 
work  in  the  field  and  the  number  of  persons  attached  to  the  industry.  At 
all  times,  some  of  the  persons  normally  making  their  living  by  any  given 
line  of  effort  are  not  at  their  usual  tasks.  Fortunately  for  the  accuracy 
of  our  computations,  the  fraction  of  all  employees  not  at  work  is  usually 
too  small  to  affect  the  results  materially,  but,  in  times  of  business  depres- 
sion, the  percentage  may  run  very  high  and  the  effects  then  become  of 
great  moment. 

It  is  usually  necessary  to  determine  average  annual  earnings  by  dividing 
the  total  of  wages  paid  by  the  total  number  of  employees  attached  to  the 
industry.  It  is  sometimes  only  possible  to  estimate  the  average  number 
of  employees  actually  working  in  a  given  field  by  dividing  the  total  wage 
bill  by  a  reported  average  wage  for  the  period.  Evidently  then,  the  ques- 
tions of  wage  rates  and  numbers  of  persons  employed  are  so  closely  inter- 
locked that  both  must  be  studied  together  if  an  intelligent  view  of  the 
entire  situation  is  to  be  obtained. 


34  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

For  each  of  several  important  fields  of  industry,  the  Census  Bureau  and 
the  Interstate  Commerce  Commission  state  the  average  !  number  of  per- 
sons employed  and  the  total  amount  paid  to  those  persons  in  salaries  and 
wages.  At  first  thought,  it  might  seem  that  the  division  of  the  amount 
paid  by  the  average  number  of  employees  would  show  the  actual  amount 
paid  each  employee.  A  little  computation  will,  however,  make  it  clear  that 
the  quotient  actually  represents  approximately  the  average  wage  received 
by  an  employee  who  worked  constantly  during  the  period  designated  by 
his  employer  as  "full  time." 

This  rule  is  necessarily  modified  somewhat  by  the  existence  of  fractional 
days  of  work  and  by  overtime.  If,  for  example,  John  Jones  works  in  the 
forenoon  and  Win.  Smith  in  the  afternoon  of  a  given  day,  the  chances  are 
that  both  will  appear  on  the  payroll  and  hence  will  be  counted  as  two  men. 
If  each  received  $2.00  for  his  work,  only  $4.00  is  paid  out.  But  $4.00 
divided  between  2  men  gives  only  $2.00  each  which  is  only  half  the  full- 
time  daily  wage. 

The  only  large  industry  in  which  the  fractional  day  seems  to  be  common 
enough  to  be  of  serious  import  is  that  of  coal  mining.  In  this  field  fractional 
time  seems  to  be  almost  the  rule;  hence  the  average  wage  for  miners  ob- 
tained by  dividing  the  total  wage  bill  by  the  reported  average  number  of 
workers  gives  a  quotient  representing  the  average  wage  for  a  day  much 
shorter  than  the  nominal  full-time  day  in  the  mines. 

In  most  industries,  the  error  due  to  the  presence  of  workers  employed 
for  fractional  days  is  probably  offset  almost  entirely  by  the  fact  that  many 
of  the  men  work  longer  than  the  standard  number  of  hours.  If,  for  exam- 
ple, Richard  Roe  puts  in  three  hours  overtime  and  makes  $6.00  instead  of 
the  regular  $4.00  per  day,  he  is  still  counted  as  one  man  and  hence  the  quo- 
tient is  distinctly  larger  than  the  normal  full-time  daily  wage. 

The  result  obtained,  therefore,  by  dividing  the  recorded  amounts  paid 
by  the  recorded  number  of  workers  usually  represents  the  average  amount 
received  by  a  worker  who  appeared  for  work  every  regular  work  day  but 
who  missed  the  average  number  of  fractional  days  and  who  put  in  the 
average  amount  of  overtime.  Since  in  most  industries,  as  just  stated,  the 
amount  of  overtime  probably  about  balances  the  time  lost  through  ab- 
sences of  a  part  of  a  day,  the  hypothetical  average  employee  just  referred 
to  probably  earns  in  the  long  run  approximately  the  same  amount 2  as 
the  one  who  puts  in  the  nominal  full-time  day.  Nevertheless,  owing  to 
the  nature^  of  the  data  at  hand,  it  follows  that  whenever  a  difference  exists, 
it  is  the  hypothetical  average  employee  rather  than  the  one  conforming 

'The  Census  computes  the  average  number  by  adding  together  the  totals  actually  re- 
ported for  the  15th  day  of  each  month  and  dividing  by  twelve  the  sum  thus  obtained. 

-  In  busy  times,  he  would  put  in  overtime  and  earn  more;  in  slack  times  the  reverse  would 
be  true 


PRELIMINARY  STUDIES  35 

to  the  standard  length  of  working  day  announced  by  the  employer,  who 

must,  for  the  purposes  of  this   investigation,  be  considered  a  full-time 
worker. 

It  is  evident,  on  the  basis  of  the  definition  jusl  stated,  that  although  a 
minority  of  employees  will  earn  more  than  the  full-time  wage  because  they 
miss  fewer  than  the  average  number  of  fractional  days  or  because  they  put 
in  over-time,  far  greater  numbers  will  earn  less  than  the  full-time  wage 
because  there  will  be  many  days  when,  on  account  of  sickness,  desire  for 
leisure,  personal  business  matter,  or  lack  of  available  work,  their  names 
will  not  appear  on  the  payroll.  It  follows  then  that  the  average  wage,  as 
shown  by  the  quotient  obtained  by  dividing  the  amount  paid  by  the  aver- 
age number  of  employees,  is,  as  a  rule,  distinctly  larger  than  the  average 
received  by  the  employees  who  normally  obtain  a  livelihood  by  working  in 
the  given  industry. 

From  the  point  of  view  of  production  costs,  the  directly  computed 
average,  (which  represents  full-time  earnings,)  may  be  satisfactory,  but 
it  certainly  will  not  answer  if  the  aim  is  to  picture  the  average  labor  income 
of  the  employees.  In  a  year  when  many  of  the  workers  are  idle  for  two  or 
three  months,  there  will  occur  a  striking  diminution  in  the  total  demand 
for  necessities  or  customary  luxuries  even  though  the  figures  show  that  the 
average  full-time  wage  has  undergone  no  decline.1  A  necessary  prerequi- 
site, therefore,  to  measuring  the  income  from  wages  received  by  the  aver- 
age person  who  normally  is  employed  in  an  industry  is  the  computation 
for  each  year  of  a  fraction  representing  the  ratio  of  the  number  of  days 
actually  worked  by  the  average  employee  to  the  number  of  days  put  in  by 
the  hypothetical  "full-time"  worker. 

The  computation  of  such  a  fraction  or  ratio  is  fraught  with  great  diffi- 
culties, for  practically  no  extensive  data  exist  which  show  with  any  degree 
of  reliability  the  amount  of  unemployment  in  the  various  industries  for 
any  year,  to  say  nothing  of  the  fact  that  there  are  available  no  records 
comparing  the  various  years  of  the  decade  which  we  are  studying. 

The  LTnited  States  Census  Bureau  attempted  in  1890  and  again  in  1900 
to  secure  information  in  this  connection,  but  the  method  used  had  two 
serious  defects:  First,  inquiry  was  made  as  to  the  number  of  months  or 
parts  of  months  unemployed,  and  since  it  is  an  obvious  fact  that  thousands 
of  persons  are  absent  from  work  during  many  days  of  the  year,  yet  seldom 
consecutively  for  any  considerable  fraction  of  a  month,  it  appears  certain 
that  many  of  those  recorded  as  full-time  workers  were  really  unemployed 
for  an  aggregate  of  time  not  at  all  negligible;  second,  the  period  covered 

1  If,  for  oxamplc,  the  Census  wage  total  is  divided  by  the  Census  average  number  employed 
the  resulting  quotients  will  show  no  decline  as  long  as  wage  rates  remain  constant,  even  if 
half  the  workers  are  unemployed. 


36  THE  ESTIMATE  BY  SOURCE  OF  PRODUCTION 

by  the  inquiry  was  a  whole  year,  and  experience  demonstrates  that  the 
ordinary  informant's  memory  is  too  poor  to  enable  him  to  give  much  infor- 
mation, even  for  himself,  to  say  nothing  of  other  members  of  the  family, 
concerning  brief  periods  of  unemployment  occurring  several  months 
before.  Under  these  circumstances,  it  seems  safe  to  use  the  Census 
figures  only  as  relative  and  not  as  absolute  measures  of  unemployment. 

The  basic  data  upon  which  all  the  estimates  are  superimposed  are  the 
records  of  the  number  of  workers  employed  in  Massachusetts  factories.1 
At  first  thought,  it  seems  absurd  to  place  such  a  large  superstructure  upon 
such  a  narrow  foundation,  but  a  careful  study  of  such  other  employment 
records  as  are  available  indicates  that  variations  in  Massachusetts  employ- 
ment are  distinctly  typical  of  those  in  manufacturing  throughout  the 
United  States  and  that  these  cyclical  fluctuations  in  employment  in  man- 
ufacturing are  similar  in  a  large  measure  to  those  characterizing  conditions 
in  other  industrial  fields.  The  Massachusetts  records  have  been  compiled 
for  many  years  and  have  all  the  earmarks  of  statistical  accuracy,  two 
characteristics  which  make  them  unique  in  this  field  as  far  as  the  United 
States  is  concerned. 

The  fundamental  assumption  in  the  present  study  is  that  workers  do 
not  tend  to  shift  rapidly  from  one  branch  of  industry  to  another.  If  this 
assumption  is  true  it  follows  that  a  curve  representing  the  number  of 
employees  depending  for  a  living  upon  a  great  industry  like  manufacturing 
will  show  no  sharp  breaks  or  irregularities.  A  further  hypothesis  which 
accords  with  the  views  of  Mr.  Hornell  Hart  as  expressed  in  his  monograph 
on  "Fluctuations  in  Unemployment  in  Cities  of  the  United  States"  is  that 
in  times  when  wages  in  any  line  of  enterprise  are  very  high,  that  industry 
may  attract  to  itself  a  number  of  persons  not  normally  working  for  wages; 
for  example,  school  boys  and  girls,  women  and  girls  normally  performing 
only  household  duties,  and  casual  independent  workers  such  as  agents, 
peddlers,  shop  keepers  and  mechanics.  The  addition  of  such  persons  tends 
to  produce  bumps  on  the  curve  representing  the  total  number  of  employees 
attached  to  all  industries,  a  curve  which  would  otherwise  be  nearly  smooth. 
For  example,  during  1917  and  1918,  the  aggregate  number  of  persons 
receiving  salaries  and  wages  was  doubtless  noticeably  increased  by  the 
addition  of  boys  who  left  school  to  join  the  army  and  of  women  and  girls 
who,  for  patriotic  reasons,  sought  employment  which  they  believed  would 
help  win  the  war. 

The  Census  Bureau  in  1890  and  also  1900  enumerated  on  the  basis  of 
family  statements  the  number  of  persons  who  were  unemployed  in  the 

1  It  is  impossible  to  calculate  from  these  figures  the  absolute  numbers  unemployed  for 
we  'lo  not  know  how  many  have  found  work  outside  the  manufacturing  field.  The  data 
arc  then  useful  only  as  measures  of  relative  employment. 


PRELIMINARY  STUDIES  37 

preceding  year  and  classified  the  unemployment  into  the  periods  one  to 
three  months,  four  to  six  months,  and  seven  to  twelve  months.  The  ratio 
of  the  per  cent  of  the  workers  in  each  industry  unemployed  for  each  of 
these  periods  to  the  per  cent  of  Massachusetts  factory  workers  shown  by 
the  Census  to  be  unemployed  for  the  same  length  of  time  was  computed 
by  this  Bureau.  For  each  industry,  six  ratios  were  thus  obtained,  three 
for  each  of  the  two  Censuses.  The  six  ratios  were  then  averaged  and  these 
averages  were  recorded. 

The  next  step  was  to  multiply  the  actual  per  cent  of  unemployment  in 
Massachusetts  factories  as  estimated  from  the  State  Statistics  of  Manu- 
factures for  the  various  years  by  the  average  ratios  just  described.  The 
resulting  products  were  the  preliminary  estimates  of  the  per  cents  of  unem- 
ployment in  each  of  the  different  industries  in  the  various  years  of  the 
decade.  The  remainders  obtained  by  subtracting  each  of  these  per  cents 
from  100  were  assumed  to  represent  the  ratio  of  the  number  of  those  actu- 
ally at  work  to  the  number  of  persons  attached  to  the  industry — that  is, 
normally  making  their  living  in  this  field  of  endeavor. 

The  records  most  commonly  available  show  the  average  number 
actually  working  in  a  specified  industry.  The  procedure  followed  here  is 
to  divide  these  average  numbers  by  the  tentative  ratios  just  mentioned  in 
order  to  obtain  a  preliminary  estimate  of  the  number  of  employees 
attached  to  each  of  the  respective  industries.  Since  it  has  been  assumed 
that  the  number  attached  to  any  large  industry  as  a  rule  varies  slowly  and 
regularly,  the  original  figures  have  been  plotted  as  historigrams  and  these 
curves  have  been  smoothed.  From  the  smooth  curves  thus  obtained, 
numbers  have  been  read  which  are  assumed  to  represent  approximately 
the  number  of  employees  attached  to  each  industry  in  each  year.  The 
resulting  numbers  and  the  ratios  derived  by  dividing  the  number  actually 
at  work  by  the  estimated  number  attached  to  the  industry  are  shown  in 
Tables  21,  2J,  and  2K. 

After  the  numbers  of  employees  had  been  computed  for  each  of  the 
industries  in  which  records  are  available  these  numbers  were  summated 
for  each  of  the  various  years.  The  total  number  of  employees  had  already 
been  calculated  by  a  method  described  on  a  previous  page.  It  was,  then. 
only  necessary  to  subtract  the  total  number  of  employees  in  the  recorded 
industries  from  the  total  number  in  all  industries  in  order  to  arrive  at  the 
estimated  number  in  the  unclassified  industries,  an  estimate  shown  in  the 
next  to  the  last  line  of  Table  2.J.  This  step  completed  the  classification 
of  the  gainfully  employed  in  so  far  as  necessary  for  this  study. 


38 


rHE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

TABLE  21 


AN  ESTIMATE  OF  THE  AVERAGE  NUMBER  OF  EMPLOYEES  ACTUALLY  AT  WORK  IN 
CERTAIN  OF  THE  PRINCIPAL  INDUSTRIAL  FIELDS  OF  THE  CONTINENTAL  UNITED 
STATES 


Indn.st  ry 


Laundry 

Construction 

Hand  trades  a.  . .. 
Factory  b 

Steam  railway  r.    . 

Pullman 

Express 

Transportation  by 
water 

Street  railways. 

Telephone 

Telegraph 


Thousands  at  Work  in 

he  'i  eai 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1910 

140 

1,510 

3S9 

7,40.5 

155 
1,456 

395 
7,370 

159 
1,368 

411 
7,500 

169 
1,459 

409 

7. 930 

1S5 
1,538 

IDS 
8,000 

175 

1,110 

176 

8,001 

173 
1,054 

471 
7,993 

179 

1,147 

428 

9,457 

1,641 

It 
57 

1,742 
15 
62 

1,750 
15 
64 

1,81.8 
15 
68 

1,815 

L'l 
OS 

1,005 
20 
04 

1,575 
19 
64 

1,744 

20 
72 

208 

212 

210 

224 

230 

225 

232 

237 

252 

143 

31 

266 

159 

33 

274 

180 

35 

282 

191 

38 

284 

214 
39 

278 

215 

39 

276 

20S 

41 

292 

237 

46 

1917 


168 

1,000 

4S7 

10,140 

1,834 
19 
84 

239 

295 

203 
52 


1918 


1 55 
726 
558 

ID. ISO 

1,937 
19 
88 

254 

292 

27* 
56 


a  Includes  automobile  repairing,  blacksmithing,  tailoring,  dressmaking,  millinery,  shoe  repairing,  custom 
grist  and  saw  mills,  and  other  similar  minor  industries. 

b  Includes  lumbering  and  gas  manufacture.  c  Includes  switching  and  terminal  companies. 

TABLE  2J 

AN  ESTIMATE  OF  THE  TOTAL  NUMBER  OF  GAINFULLY  EMPLOYED. 9  AND  OF  THE 
AVERAGE  NUMBER  OF  EMPLOYEES  ATTACHED  TO  EACH  OF  THE  PRINCIPAL  IN- 
DUSTRIES OF  THE  CONTINENTAL  UNITED  STATES 


Industry 


Total  Gainfully  Em 

ployed  9 

Total  Eentrepren'rsy 
Total   Employee-  9 

Employees  by  Indus 

tries,  Agriculture  f 

Mining 

Laundry 

Construction 

Hand  trades0 

Factory*? 

Commercial  electric 
light  &  power 

Steam  railway*. .  .  . 

Pullman 

Express 

Transportation  by- 
water 

Street  railway 

Telephone 

Telegraph 

Banking 

Unclassified  indus- 
tries &  professions 
Government  d 


Thousanc 

s  of  employees  in 

the  year 

1909 

1910 

1911 

1912 

1913 

37,101 

9,710 

27,391 

1914 

37.252 

9.743 

27,509 

1915 

37,522 

9,746 

27,776 

1910 

1917 

33,910 

9,551) 

24.300 

34,858 

9,617 
25,211 

35,581 

9.04S 
25,933 

36,282 

9,679 

26,603 

38,101 

9.737 

28,364 

38,681 

9752 

28,929 

2,370 
1,073 

2,379 
1,106 

2,3ss 
1 , 1 32 

2,390 
1,150 

2,394 
1,159 

2,393 
1,163 

2,382 

1,163 

2,373 

1,154 

2,288 
1,141 

1.50 
1,58.5 

410 
7,730 

161 
1,600 

421 
7,810 

172 
1,619 

425 
7,970 

1S1 

1.017 

432 

8.190 

194 
1,008 

446 
8,430 

193 
1,427 

487 
8,790 

190 

1.292 

190 

9,102 

185 
1,194 

481 
9,757 

174 

1,026 

495 

10,395 

55 

1,705 

14 

59 

61 

1,77.5 

15 

63 

67 

l.sis 

16 

00 

73 
1,834 

16 

69 

79 
1,836 

21 
71 

84 
1,838 

22 

72 

89 

1,840 

21 

73 

94 

1,842 

20 

76 

98 

1,856 

20 

85 

224 

260 

150 

32 

231 

272 

163 

34 

239 

282 

1 85 
37 

243 
289 
205 

10 

248 

293 

218 

41 

250 

295 

226 

42 

252 

297 

230 

44 

253 

298 

242 

47 

256 
299 
267 

53 

150 

151 

102 

168 

173 

178 

180 

183 

186 

6,823 
1,565 

7,376 

1.620 

7,685 
1.671 

7.9S0 
1,727 

s.397 
1,785 

8,183 
1,866 

8,175 
1,955 

S.122 
2,037 

7,000 
2,691 

1918 


39.981 

9.757 
30.224 


2,121 
1.108 

161 

757 

572 

109  5 


102 

1,958 

19 

89 

275 

300 

285 

58 

193 

6,194 
5,129 


a  Includes  automobile  repairing,  blacksmithing,  tailoring,  dressmaking,  millinery,  shoe  repairing,  custom 
grist  and  saw  mills,  and  other  similar  minor  industries. 

b  Includes  switching  and  terminal  companies. 

<"  Includes  lumbering  and  gas  manufacture. 

'I  Federal,  state,  and  local,  including  the  army  and  navy,  public  schools  and  government  owned  in- 
dustries. 

'  Includes  stock  raising,  market  gardening,  etc.  '  See  Table  211. 

<7  Members  of  the  family  assisting  their  parents  on  the  home  farms  are  not  included  among  the  gain- 
fully employed  for  purposes  of  this  study. 


PRELIMINARY  STUDIES 


39 


TABLE  2K 


AN  ESTIMATE  OF  THE  RATIO  OF  THE  AVERAGE  NUMBER  OF  EMPLOYEES  AT  WORK 
TO  THE  AVERAGE  NUMBER  OF  EMPLOYEES  VTTACHED  TO  EACH  OF  CERTAIN 
LEADING  INDUSTRIAL  FIELDS  IN  THE  CONTINENTAL  UNITED  SI  Ml  - 


Industry 


Automobile  repair.  . 

Laundry 

Construction 

Other  hand  trades  a . 
Factory  6 


Steam  railway? 

Pullman 

Express 

Transportation  by  water 


Street  railways 
Telephones    .  .  . 
Telegraphs.  .  .  . 


1999 


962 

935 

.957 

.947 

958 


.962 
962 

.963 
927 


.  968 
.  957 
964 


l'JIO 


980 
.963 

910 
.931 

944 

981 

985 

.917 

.977 
.974 
.964 


1911 


932 
924 
845 

971 
911 

963 
969 
963 
906 

970 
97(1 
967 


L!  1.' 


.911 

.931 

.  992 

947 

.968 

.990 

953 

.985 

.919 

97s 

949 

.968 


191.1 


.927 
958 

.956 
912 

.919 

988 

979 

968 

.971 
983 


191  I 


.  977, 
905 

.782 
978 
910 

873 
985 

sn7 
899 

.943 
.952 
943 


191! 


978 

911 

816 

97.7 
.878 

856 

922 
929 

994 
.933 


1916 


939 

9  10 

v7:; 

9  17 
977. 
948 
936 

982 
980 

977) 


1917 


973 

971 
'.,77 

918 

975 

.988 
979 
989 
934 

986 
982 

979 


191  s 


9M) 

.970 

97.9 
977 

.961 

.989 
984 
989 

977 
977. 
971 


a  Includes  blacksmithimr,  tailoring,  dressmaking,  millinery,  shoe  repairing,  custom  grist  and  sav;  mills, 
and  other  similar  minor  industries. 

ft  Includes  lumbering  and  gas  manufacture. 
e  Includes  switching  and  terminal  companies. 


CHAPTER  3 
AGRICULTURE  x 

§  3a.  Sources  of  Information 

The  statistics  utilized  in  this  field  are  derived  mainly  from  the  Census 
and  from  the  reports  of  the  Department  of  Agriculture.  As  this  is  one 
of  the  largest  of  the  nation 's  industries,  it  is  fortunate  that  the  data  avail- 
able are  both  abundant  and  reasonably  reliable.  Since,  unfortunately, 
the  returns  for  the  Census  of  1920  are  not  yet  complete  in  some  respects, 
it  has  been  necessary  in  such  instances  to  use  the  preliminary  estimates 
for  about  half  the  States  as  bases  for  the  1919  statistics.  In  certain  lines, 
the  Census  figures  for  the  volume  of  production  for  1919  are  materially 
lower  than  are  those  of  the  Agricultural  Department  for  the  same  year. 
Since  the  Census  estimates  are  probably  the  more  accurate,  they  have 
been  relied  upon  in  so  far  as  possible.  Even  with  the  Census  reports,  for 
twenty-three  States  still  unavailable  in  some  fields,  it  nevertheless  appears 
probable  that  the  percentage  of  error  in  the  figures  for  this  industry  is 
lower  than  the  like  percentages  for  many  of  the  other  fields. 

§  3b.  Method  of  Procedure 

The  method  adopted  in  order  to  arrive  at  the  net  value  product  of  the 
industry  has  been  to  deduct  from  the  gross  value  product  all  payments  to 
other  industries  for  their  goods  or  services  used  in  agricultural  production. 
The  remainder  represents  the  amount  left  as  a  reward  for  the  services  of 
persons  or  property  devoted  to  the  agricultural  field.  The  general  plan  of 
procedure  is  illustrated  by  the  following  examples. 

Nearly  half  of  the  total  crop  yield  is  fed  to  livestock.  The  remainder  is 
either  sold  to  outside  purchasers  or  consumed  by  the  farmers  themselves. 
Both  sales  and  consumption  evidently  form  part  of  the  net  income  of 
agriculture.  In  addition  to  crops,  the  agricultural  industry  turns  out  a 
great  quantity  of  livestock  products  in  the  form  of  draft  animals,  milk 
cows,  milk,  butter,  meat,  eggs,  honey,  wool,  and  mohair.  Farmers  also 
contribute  each  year  to  the  national  income  by  bringing  into  a  state  of 
cultivation  a  large  area  of  previously  unimproved  land. 

Manifestly,  however,  this  output  cannot  all  be  ascribed  to  the  labors  of 
agriculturalists  alone;  for,  in  order  to  keep  up  production,  farmers  must 

i  Drs.  L.  C.  Gray  and  O.  C.  Stine  of  the  l*.  S.  Department  of  Agriculture  have  given  very 
helpful  suggestions  which  have  been  utilized  in  this  chapter. 

40 


AGRICULTURE  41 

buy  from  other  industries  fertilizers,  tools,  machinery,  automobiles,  gaso- 
line, harness,  and  saddles,  and  also  a  certain  amount  of  bank  credit  and 
fire  insurance.  Payments  for  these  articles  and  services  must,  therefore, 
be  estimated  and  subtracted. 

In  certain  years,  farmers  dispose  of  their  livestock  in  large  numbers, 
thus  bringing  in  an  increased  money  income,  but  at  the  expense  of  reduced 
inventories.  Evidently,  then,  accuracy  requires  that  account  be  taken  of 
the  diminution  in  inventories  in  figuring  up  actual  production  for  the  year. 

§  3c.  The  Value  of  Animal  Products 

With  these  fundamentals  in  mind,  we  can  now  proceed  to  anatyze  some 
of  the  more  important  items  entering  into  the  accounts  of  this  field.  Ani- 
mal products  may  well  be  considered  first.  By  combining  the  reports  of 
the  United  States  Department  of  Agriculture  and  the  Food  Administra- 
tion, we  are  able  to  secure  a  complete  estimate  of  the  value  of  all  meat 
obtained  from  the  larger  animals.    This  record  appears  in  Table  3A. 


42 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  3A 


THE  VALUE  OF  THE  LARGER  DOMESTIC  ANIMALS  GROWN  AND 
SLAl  GHTEKED   IN   THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

Year 

Estimated 
production 
in  millions 
of  pounds 

Index  of 
average 

meat 
prices  to 
farmers 

Index  of 
total  value 
meat  pro- 
duced 
(Millions) 
B  XC 
100 

Estimated 

total  value  to 

farmers  of  all 

animals 

slaughtered 
(Thousands) 

Ratio 

of 
EtoD 

Estimated 
total  value 
to  farmers 
of  all 

animals 

slaughtered 

(Millions) 

FXD 

1909 

1910 
1911 
1912 

1913 

1914 
1915. . . 
1916 

1917 
1918 

1919 

1920 

19,7.52  a 
17,390c 
19,1316 
18,249* 

18,4746 
17,7066 
19,5406 
21,0306 

18,6926 
22,3376 
22,564  « 
21,000  a 

6.05^ 

O.SSrf 
.5.74'' 
6.24* 

7.03e 

7.23« 

6.64* 

7.79^ 

11.52" 

13.54* 

13.87'' 
11.84-' 

1,195 

1,196 
1,098 
1,138 

1,299 
1,280 
1,298 
1,638 

2,154 

3,02.5 
3,130 

2,487  a 

$1,381,303/ 

1.156 

$1,381 
1,382 
1,269 
1,314 

1,501 

1,480 
1,500 

1,892 

2,489 
3,497 
3,618 
2,874  a 

a  U.  S.  Dept.  cf  Agriculture,  Monthly  Crop  Reporter,  March,  1919,  p.  30,  and  March, 
1920,  p.  27. 

6  U.  S.  Food  Administration,  Stephen  Chase,  Production  of  Meat  in  the  United  Stairs, 
p.  80. 

c  0.91  of  the  1911  amount,  this  being  the  ratio  of  the  1910  to  the  1911  quantity  of 
livestock  shipped  on  railways  as  shown  by  the  Statistics  of  Railways,  published  by  the 
Interstate  Commerce  Commission. 

''  Extended  back  from  1912  and  forward  from  1918  on  the  basis  of  the  tables  in  the 
Monthly  Crop  Reporters  for  March,  1920,  p.  28,  and  February,  1921,  p.  11. 

e  Monthly  Crop  Reporter,  February,  1919,  p.  19. 

/From  data  in  the  Census  of  Manufactures  for  1910,  Vol.  VIII,  p.  380,  and  from  the 
Abstract  of  the  Census  for  1910,  pp.  356  and  478,  it  is  possible  to  calculate  that,  in  1909, 
retail  slaughter  houses  killed  4,088,000  beeves,  2,880,000  calves,  1,940,000  sheep  and 
lambs,  3,970,000  hogs  and  135,000  goats  and  miscellaneous  animals.  If  the  animals 
in  each  of  these  classes  were  on  the  average  worth  the  same  as  the  animals  slaughtered 
on  farms,  their  value  was  $178,636,000.  Wholesale  slaughterhouses  paid  farmers 
$960,726,000.  From  this  amount  should  be  deducted  the  $28,298,000,  which  is  shown  by 
the  Statistics  of  Railways  to  have  been  paid  as  freight  on  livestock,  leaving  $932,428,000 
as  returns  to  farmers.  In  addition,  the  Census  shows  that  farmers  slaughtered  animals 
worth  some  $270,239,000.  The  total  value  of  meat  animals  to  farmers  therefore 
amounted  to  $1,381,303,000  in  1909.  No  allowance  is  made  for  profits  to  dealers  and 
shippers,  for  it  is  assumed  that  the  larger  part  of  this  class  are  themselves  included  by 
the  Census  under  the  heading  of  agriculture. 

o  Rough  preliminary  estimate. 

Dairy  products  also  form  an  important  part  of  the  output  of  American 
farms.  In  1909,  according  to  estimates  based  upon  the  Abstract  of  the 
Census  of  1910,  p.  344,  the  butter  made  on  farms  reporting  dairy  cows  but 


, 


AGRICULTURE 


43 


no  dairy  products  amounted  probably  to  about  $16,530,000,  in  addition 
to  the  butter  valued  at  $122,483,000,  reported  as  used  on  farms.  The 
Census  also  indicates  that  milk  amounting  in  value  to  -5158,700,000,  was 
consumed  on  the  farm  as  human  food,  making  a  total  of  8297,713,000,  in 
dairy  products  used  for  sustenance  by  farmers  and  their  families.  This 
amount  added  to  the  $473, 769,000,  value  of  dairy  products  reported  as 
sold  by  farmers  gives  $771,482,000,  as  the  total  value  of  dairy  products 
consumed  or  sold  off  the  farm  by  farmers  in  the  year  1909.  The  method 
of  making  estimates  for  the  intercensal  years  is  outlined  in  Tables  3B 
and  3C. 

TABLE  3B 

AN   ESTIMATE  OF  THE   VALUE  OF  DAIRY   PRODUCTS  CONSUMED  BY 
FARM   FAMILIES  IN  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

Index  of 

Estimated 

total  value 

Dairy  products 

dairy 

Year 

Index  of 
price  of  dairy 

number  (if 

farms  in 

the  U.  S.'< 

of  dairy 

products 

consumed  by 
farm  families 

product  - 
consumed  by 

products" 

consumed  by 

in  1909« 

farm  faun  lies 

farmers 

(Thousands) 

(Millions) 

B  X  C 

D  X  E 

1900..  .  . 

1.000 

1.000 

1.000 

§297,713 

$298 

1910..  .  . 

1 .  063 

1   005 

1  .038 

318 

1911.. . . 

1 .  (KM) 

1.007 

1 .  007 

300 

1912..  . . 

1.07(1 

1.009 

1.086 

323 

1913.... 

1.088 

1.011 

1    100 

327 

1914..  .  . 

1 .  065 

1.013 

1.079 

321 

1915..  . 

1.064 

1.01  1 

1.079 

321 

1916..  .  . 

1.118 

1.015 

1.135 

338 

1917..  .  . 

1.433 

1.016 

1    156 

131 

1918.... 

1.783 

1  017 

1.813 

.Ml) 

1919... . 

2.024 

1.018 

2.060 

613 

1920. . 

2.197 

1.019 

2  239 

007 

a  A  simple  arithmetic  average  of  the  index  for  butter  prices,  (derived  from  the  Year- 
books of  the  Dept.  of  Agriculture,)  and  the  respective  indices  of  retail  and  wholesale 
prices  of  milk  as  reported  by  the  IJ.  S.  Bureau  of  Labor  Statistics. 

'-  Based  on  the  U.  S.  Census  reports  for  1910  and  1920,  numbers  for  the  intermediate 
years  being  interpolated  along  a  smooth  curve. 

c  For  mode  of  derivation,  see  the  text. 


o 

eo 

W 

m 
< 


CO 

W 
i—i 
*z 

<1 

PQ 

Q 

O 
co 

co 
H 
o 
p 
0 
o 

Oh 
>-< 

<! 

Q 

Eh 

O 

H 
55 
P 

O 

hH 

H 

o 

H 

W 
K 
H 

Ph 

O 

W 


H 

CO 

< 


*-» 

Estimated 
value  of 

dairy  prod- 
ucts sold 

by  farmers 

(Millions) 

G  X  I 

r^  ^*  ©  cm 

T}1  lO  Tff  lO 

O  ©  ©  iO 

MrHTPO 

CD  i— I  ©  N- 

"-i  *#  ©  © 

oo  cO'-^co 

1— 1  ,—   ^H 

1— I 

Ratio  of 
H  toG 

2.217/ 
2.149s 
2 . 083  s 
2.017  s 

Cft   ca   cs>   c» 
CM  iO  ©  CO 
iO  CO  ■— I  iO 

©  oo  oo  i-^ 

t~~  i— i  co  > — < 
00  CM  iO  © 

CO  ©  iQ  -* 

M 

Value  of  dairy 

products  sold 

by  farmers  in 

census  years 

(Thousands) 

OS 

so 
co~ 

© 
© 
CO 

©~ 
© 
I— 1 

i— r 

O 

Estimated 

value  of 

whole  milk 

and  cream 

purchased 

by  factories 

(Millions) 

D  XF 

hh  cc  «o  © 

CM  CM  CM  CM 

CD  «0  t»  »0 

©  1^  ©  -fi 
CM  CM  CM  CO 

"*  CM  ^h  CO 

oo  Tt<  r^  i>- 

-*©I>00 

PB, 

S  o  o  a 
^h  00  CM  © 
ONOM 

©  O  i-h  CM 
CM  CM  CM  CI 

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co  co  Tf  io 

CI  CM  CM  CM 

oo  ©  i— '  *— i 
©  t^  ©  o 

CM  CM  CM  CO 

H 

Value  of  whole 

milk  and  cream 

purchased  by 

factories  in 
census  years 

(Thousands) 

"a 

CM 

© 

co~ 

CM 

6^ 

CM 

co 

CM 

w" 

CM 

CM 

© 

©" 

Q 

Preliminary 
index  of 

total  value 

of  dairy 

products 

soldc 

©   LQ  -^   CM 

00  CO  CM  hh 

CO  --^©©_ 

O  •— i  ©  i— ' 

r— 1   1— 1   ,—    ,— 

CM  ©  ©  >0 

co  oo  -r  <— i 
o  ^©_co_ 

1— 1  ,—  ^H  ,— 

O©  t-^iO 
i— '  t—  ©  »o 

©^©  TT  © 

oo'cm"©"©" 

i-i  CM  CM  CM 

O 

Estimated 
number  of 
cows  whose 

products  arc 
marketed  b 

(Thousands) 

O  00-h  CM 
00  LO  CM  © 

©~©~©"o~ 

OlONO 

OOOCl^ 
©  t^  CM  © 

cfoV-r»-r 

00  b-  t~--+< 

©  oo  -t  cm 

IQ  00  ©  CM 

CM*"cM"eo~ccr 

« 

Estimated 
number  of 
cows  kept 
principally 
for  milk  a 
(Thousands) 

17,010 
17,120 
17,300 
17,180 

©  LO  lO  LO 

©  ©  •*  co 
O^i-H_cq^eo 

t^t^tCoo" 

r-H  ^H   ^H  ^H 

©  iO  ©  CM 

©  CM  ©  t^ 

©__C0_^O__ 

©~©~of©~ 

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03 
V 

3 

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3 

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3 

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rt   03 

S  S3 

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af- 
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3.3 
co   os 

S--C 
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'53 

X! 

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O   rj   O  — • 

I'C  £  3^ 

3    bt  Sh 
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3    CS    O 


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, 


AGRICULTURE 


45 


Another  important  class  of  animal  products  consists  of  poultry  and  eggs. 
For  these  articles,  relatively  little  information  is  available;  for  the  inter- 
censal  years.  The  Census  figures  themselves  are  to  a  considerable  extent 
estimates — hence  no  high  degree  of  accuracy  can  be  expected  in  the  final 
results.  The  interpolations  recorded  in  Tables  3D  and  3E  have  been 
based  upon  shipments  of  poultry  and  eggs  on  the  railways  and  receipts  at 
the  leading  markets  combined  with  the  average  prices  for  chickens  and 
eggs  as  reported  by  the  United  States  Department  of  Agriculture. 

TABLE  3D 

AN  ESTIMATE  OF  THE  VALUE  OF  POULTRY  CONSUMED  OR  SOLD  BY 

FARM  FAMILIES 


A 

B 

C 

D 

i; 

F 

G 

Year 

Preliminary 

index  of 
quantity  of 

poult  ry 
produced  a 

Average 

price  paid 

farmers  for 

chickens b 

(Cents  per 

lb.) 

Index  of 

total  value 

of  poultry 

produced 

B  X  C 

10 

Census 

estimate 

of  value 

of  products'- 

(Thousands) 

Ratio  of 
E  to  D 

Estimated 
total  net 

product 
(Millions) 

D  X  F 

1909. . 
1910. . 
1911.. 
1912. . 

1913. 
1914.. 
1915. . 
1916. . 

1917.. 
1918.. 
1919. . 
1920. . 

3,463 
3,538 
3,651 
3,812 

3,923 
3,992 
4,046 
4,268 

4,030 
4,141 
4,200  d 
4,000 d 

10.67 
11.69 
10.72 
10.89 

11.77 
12.21 

11.88 
13.27 

16.67 
20.85 
23.84 
26.12 

3,695 
4,136 
3,914 
4,151 

4,618 
4,874 
4,807 
5,664 

6,718 

8,633 

10,012 

10,448 

$192,500 
$356,200 

52. 1« 

49.8/ 
48.0/ 
46.0/ 

44.2/ 
42.5/ 
40.8/ 
39.4/ 

38.1/ 
36.7/ 
35.6  • 
34.5/ 

$192 
206 
1SS 
191 

204 
207 
196 
223 

256 

317 
356 
360 

°Sum  of  thousands  of  tons  of  poultry,  game  and  fish  originating  on  railways  as 
freight;  one-tenth  of  cars  of  live  poultry  reaching  New  York  City;  packages  of  dressed 
poultry  reaching  New  York  City,  divided  by  2,000;  and  0.3  of  number  of  farms  in 
United  States.    The  last  item  is  added  to  account  for  home  consumption. 

b  Average  of  prices  for  12  months — see  Monthly  Crop  Reporter  for  December  of  each 
year. 

c  95  per  cent  of  value  of  poultry  raised,  the  oilier  5  per  cent  being  allowed  for  losses. 
See  Abstract  of  Census  of  1910,  p.  353,  and  preliminary  reports  of  1920  Census  for  25 
States. 

d  Preliminary  estimate. 

e Computed  by  division. 

/Interpolated  along  a  smooth  curve. 


4o 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  3E 


AN   ESTIMATE  OF  THE  VALUE  OF  POULTRY  AND  EGGS  CONSUMED  OR 

SOLD  BY  FARM   FAMILIES 


A 

B 

C 

D 

E 

F 

Year 

Millions  of 

dozens  of  eggs 

not  used  for 

hatching 

•  Average  price 
to  fanners 
per  dozen  eggs 

Total  value 

of  eggs  to 

farmers 

(Millions) 

B  X  C 

Total  value 
of  poultry 
to  farmers  o 
(Millions) 

Total  value 
to  farmers  of 
poultry  and 

eggs  con- 
sumed or  sold 
(Millions) 
D  +E 

1909. .  . 
1910..  . 
1911..  . 
1912..  . 

1913..  . 
1914..  . 
1915..  . 
1916. .  . 

1917..  . 
1918..  . 
1919..  . 
1920. .  . 

l,516a& 
1,600  c 
1,699  c 
1,601c 

1,561c 
1,491c 
1,691c 
1,629  c 

1,470  c 
1,406  c 
1,544  ad 

1,481c 

$0.1926'' 
. 1999  c 
. 1730/ 
.1986/ 

.1922/ 
.2041/ 
.2005/ 
.2257/ 

.3112/ 

.3644/ 

.401)5'' 
.44150/ 

$292 
320 
294 
318 

300 
304 
339 
368 

457 
512 
628 
660 

$192 
206 

188 
191 

204 
207 
196 
223 

256 
317 
356 
360 

$484 
520 
482 
509 

504 
512 
535 
591 

713 

829 

984 

1 ,020 

a  Number  of  eggs  produced  minus  two  for  each  fowl  raised. 
b  Abstract  of  Census  for  1910,  p.  353. 

c  Interpolated  upon  the  basis  of  egg  receipts  at  7  leading  markets. 
d  Preliminary  report  of  1920,  Census. 
e  Rough  estimate. 

/Interpolated  upon  basis  of  average  monthly  prices  as  reported  by  the  Department 
of  Agriculture. 

(/See  Table  3D,  Column  G. 

The  fact  is  worthy  of  note  that  though  the  value  has  greatly  increased, 
the  quantity  of  eggs  produced  has  actually  diminished  during  the  decade, 
indicating  that  the  per  capita  egg  supply  available  for  the  people  of  the 
United  States  is  decreasing  still  more  rapildy. 

The  productions  of  wool  and  of  mohair  are  reported  for  the  Census  years, 
presumably  with  a  reasonable  degree  of  accuracy.  The  interpolation  for 
the  intercensal  years  has  been  made  by  aid  of  the  figures  from  the  Depart- 
ment of  Agriculture  "Desk  Sheet"  furnished  through  the  courtesy  of  the 
Bureau  of  Crop  Estimates.  There  seems  no  reason  to  believe  that  the 
figures  thus  arrived  at  are  seriously  in  error. 


, 


.\(  HIICULTURE 


47 


TABLE  3F 


AN  ESTIMATE  OF  THE  VALUE  OF  WOOL  AND  MOHAIR  PRODUCED  IN 
THE  CONTINENTAL  IN  I'll  d>  STATES 


A 

B 

C 

D 

E 

Year 

Value  reported 

by  (lie  Census 

(Thousands  J 

Value  of  wool 
as  estimated 
by  the  De- 
partment of 
Agricull  ure c 
(Thousand- 1 

Ratio  of 
B  to  (' 

Probable  value 
of  product 
(Millions) 
C  X  D 

1909. . 

$66,374  « 
129,000'' 

$  65 
72 
52 
55 

51 
53 
65 
80 

133 
173 
162 
125 

1.021 d 
958  e 

.942* 
.909* 

.902* 
887  « 

.862* 
850  e 

827  ■ 
809 « 

796'' 
7X4  « 

S  66 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

69 

19 
50 

46 
47 
56 
68 

110 

140 

129 

98 

a  Abstract  of  Census  of  1910,  p.  352. 

b  Estimated  on  basis  of  preliminary  bulletin  of  Census,  issued  April  11,  1921;  allow- 
ance made  for  mohair. 
c  From  Desk  Sheet  of  Bureau  of  Crop  Estimates. 
d  Computed  by  division. 
'  Interpolated  along  a  straight  line. 


The  preliminary  estimates  of  the  Census  indicate  a  clip  of  only  240,000,- 
000  pounds  of  wool  in  1919  as  against  289,000,000  pounds  in  1909,  showing 
a  rather  sharp  decrease  in  the  physical  production  of  this  commodity. 

Most  business  plants  have  bookkeeping  systems  and  make  annual 
inventories,  the  changes  in  which  affed  the  accounts  of  profit  and  loss. 
The  Department  of  Agriculture  estimates  one  very  large  item  in  the  agri- 
cultural inventory  at  the  beginning  of  each  year,  namely,  the  value  of  live 
stock  on  hand.  The  changes  in  this  item  are  so  large  that  it  seems  advis- 
able to  take  them  into  account  in  making  up  the  net  totals  for  the  agri- 
cultural industry.  Since  many  fluctuations  in  the  total  money  value  of 
live  stock  arise  solely  from  changes  in  prices  and  hence  represent  no  real 
variations  in  the  numbers  or  weights  of  animals,  it  has  been  necessary  to 
use  a  rather  devious  plan  of  computation  in  order  to  secure  figures  which 
show  the  magnitude  of  the  chanties  in  the  physical  quantity  on  hand, 
which  have  occurred  between  the  respective  inventory  periods.  This 
computation  is  recorded  in  Table  3G. 


48 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  3G 


AN  ESTIMATE  OF  THE  VARIATIONS  IN  THE  VALUE  OF  THE  AGGREGATE 
OF  LIVE  STOCK  ON  THE  FARMS  OF  THE  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

H 

I 

J 

Agricul- 

Census 

tural  De- 

Value of 

estimate 

partment 

Probable 

Tnclex  of 

all  live- 

Gain in 

Index  of 

Gain  in 

of  value 

estimate 

value  of 

prices  of 

stock  at 

inventory 

prices  of 

inventory 

^  oar 

of  all  live- 

of value  of 

Ratio  of 

all  live- 

farm 

1913 

of  animals 

farm 

at  current 

stock  on 

domestic 

B  to  C 

stock 

animals 

prices 

at  prices 

animals  A 

prices 

farms 

animals'' 

(Millions) 

Janu- 

Jan. 

of  1913 

(Average 

(Millions) 

Jan.  la 

on  farms 

C  X  D 

ary  15  7> 

(Millions) 

(Millions) 

for  vear) 

H  X  I 

(.Millions) 

Jan.  1 

E 

(Millions) 

F 

1909 

$4,525 

1.004 

$4,543 

.845 

$5,375 

-$587 

.890 

—  $523 

1910. . . . 

$4,925  b 

4,911 

1.003/ 

4,925 

1.029 

4,788 

+  430 

1.001 

+  430 

1911. .. . 

5,276 

.995(7 

5,250 

1 .  006 

5,218 

+  382 

.882 

+  337 

1912 

5,008 

.990(7 

4,960 

.886 

5,600 

-    188 

.925 

-   174 

1913.... 

5,502 

.  984  <7 

5,412 

1.000 

5,412 

+     50 

1.000 

+     50 

1914.... 

5,891 

.977(7 

5,755 

1 .  053 

5,462 

+  408 

1.002 

+  409 

1915.... 

5,969 

.971(7 

5,800 

.988 

5,870 

+   109 

.938 

+   102 

1916. .. . 

6,021 

.965(7 

5,810 

.972 

5,979 

—  544 

1.047 

-  569 

1917. .. . 

6,736 

.958(7 

6,454 

1 .  187 

5,435 

-  525 

1.412 

-  742 

1918.... 

8,284 

.953(7 

7,896 

1.608 

4,910 

4-     60 

1 .  593 

+     96 

1919. . . . 

8,828 

.946(7 

8,352 

1.681 

4,970 

+  410 

1.577 

+  646 

1920 

$7,996  e 

8,507 

.940/ 

7,996 

1.486 

5,380 

85 

1 .  398 

-   119 

a  Census  of  1910  was  taken  April  15. 
b  Abstract  of  U.  S.  Census  of  1910,  p.  312. 
c  Estimated  from  U.  S.  Census  reports  for  25  States. 
d  Includes  horses,  mules,  cattle,  sheep,  and  swine. 
«  Moittlrfy  Crop  Reporter  and  Yearbooks  of  Dept.  of  Agriculture. 
/  Computed  by  division. 
a  Interpolated  along  a  straight  line. 

h  Average  of  indices  for  meat  animals  and  for  horses,  weighting  the  former  2  and 
the  latter  1.    Data  from  Monthly  Crop  Reporters. 

In  Table  3H,  the  values  of  the  various  animal  products  are  summarized. 
The  figures  used  in  the  derivation  of  the  estimates  for  honey  and  wax 
produced  and  for  horses  sold  off  farms  are  not  shown,  as  these  are  relatively 
minor  items  and  no  first  class  data  are  available  as  a  basis  for  interpolation. 

The  value  of  horses  sold  off  the  farms  has  been  computed  on  the  assump- 
tion that  one-fourteenth  of  the  city  supply  is  replaced  annually.  The 
number  of  horses  in  cities  is  estimated  from  the  Census  by  aid  of  a  smooth 
curve.  The  values  per  head  are  those  stated  in  the  Census  with  interpola- 
tions for  intercensal  years  based  upon  the  Department  of  Agriculture 
reports  of  farm  prices  for  horses  and  mules.  The  numbers  multiplied  by 
these  average  values  are  used  as  estimates  of  the  total  values  of  horses  and 
mules  sold  to  supply  city  needs.  To  these  totals  have  been  added  quan- 
tities representing  90  per  cent  of  the  excess  in  the  value  of  exports  over 


, 


AGRICULTURE 


49 


imports,  it  being  assumed  that  the  fanners  would  receive  10  per  cent  less 
than  the  export  value. 

The  estimated  amounts  representing  the  production  of  honey  and  wax 
have  been  roughly  interpolated  between  the  values  recorded  by  the  Cen- 
sus in  1909  and  1919,  the  "Desk  Sheet"  furnished  by  the  Bureau  of  Crop 
Estimates  being  used  as  an  approximate  guide.  Since  the  value  of  wax 
produced  in  1919  has  not  yet  been  reported  by  the  Census,  a  slight  adjust- 
ment has  been  made  in  the  reported  honey  value  in  order  to  take  both  into 
account. 

TABLE  3H 

AN  ESTIMATE  OF  THE  AGGREGATE  FARM  VALUE  OF  ANIMAL  PRODUCTS 
PRODUCED  ON  THE  FARMS  AND  RANGES  OF  THE  CONTINENTAL 
UNITED  STATES 

(Values  in  Millions  of  Dollars) 


All  ani- 

Larger 
animals 
slaugh- 
tered a 

Dairy 

Poultry 

Wool 

Honey 

Horses 

( lains  in 

Year 

mal  prod- 
ucts 

prod- 
ucts b 

and 
eggsc 

and 
mohair  <l 

and 
wax  e 

sold  for 
city  usee 

live- 
stock in- 
ventory/ 

1909..  . . 

$2,218 

$1,381 

$    771 

$    484 

$  66 

$  6 

$  31 

-S523 

1910..  . . 

3,277 

1,382 

829 

526 

69 

6 

35 

+  430 

1911..  .  . 

2,968 

1,269 

790 

lv_> 

49 

6 

35 

+   337 

1912..  . . 

2,585 

1,314 

845 

509 

50 

6 

35 

-    171 

1913..  . . 

2,989 

1,501 

847 

504 

46 

6 

34 

+     50 

1914..  . . 

3,359 

1,480 

840 

512 

47 

6 

c»5 

-f-    109 

1915..  . . 

3,166 

1,500 

861 

535 

56 

6 

105 

+   L02 

1916..  .  . 

3,041 

1,892 

943 

591 

68 

7 

108 

—  569 

1917..  . . 

3,902 

2,489 

1,250 

713 

110 

9 

73 

-  712 

19 IS..  .  . 

6,189 

3,497 

1,581 

829 

140 

12 

34 

4-     96 

1919..  .  . 

7,228 

3,6  IS 

1,813 

9S4 

129 

13 

25 

+  646 

1920. .  .  . 

5,882  a 

2,874 

1,974 

1,020 

98 

15 

20 

119 

a  See  Table  3A,  Column  G. 

''  Sum  of  items  in  Table  3B,  Column  F  and  Table  3C,  Column  J. 

c  See  Table  3E,  Column  F. 

d  See  Table  3F,  Column  E. 

e  For  description  of  derivation,  see  the  text. 

/See  Table  3G,  Column  J. 

0  Rough  preliminary  figures. 


The  value  of  all  animal  products  showed  an  upward  trend  throughout 
the  period  until  1919.  In  1920,  however,  there  was  a  sharp  diminution 
in  the  total  value,  this  being  mainly  occasioned  by  a  fall  in  the  value  of 
meat  animals.  Because  of  variations  in  the  value  of  money,  the  apparent 
changers  in  total  values  must,  of  course,  not  be  construed  to  indicate  cor- 
responding changes  in  the  physical  output  of  livestock  products. 


50  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

§  3d.  The  Value  of  Crops  Not  Fed  to  Live  Stock 

In  addition  to  livestock  products,  farmers  and  their  families  consume 
large  quantities  of  fruits  and  vegetables,  bum  fuel  from  the  farm,  and  sell 
great  amounts  of  gram  and  other  vegetable  products  for  use  by  other  per- 
sons. To  calculate  the  net  value  of  crops  thus  consumed  or  sold  is  not  a 
simple  matter.  It  is  first  necessary  to  subtract  the  amount  used  for  seed. 
This  amount  has  been  calculated  by  multiplying  the  normal  seed  require- 
ments per  acre  of  each  crop  by  the  acreage  in  each  year  and  deducting  the 
resulting  amount  from  the  crop  of  the  year  previous,  since  it  was  from 
this  supply  that  the  farmer  reserved  his  seed. 

Estimates  of  grain  fed  to  livestock  have  been  based  upon  the  1910 
Census  and  carried  forward  by  aid  of  the  reports  in  the  Monthly  Crop 
Reporter1  showing  the  quantities  in  each  year  not  shipped  outside  the 
county  where  grown. 

The  Census  enumerators  failed  to  secure  complete  reports  for  farm  gar- 
dens, hence  an  estimated  item  has  been  added  to  fill  in  the  omission.  In 
1910,  there  were  reported  707,763  gardens  for  which  no  value  of  products 
was  assigned.  W.  C.  Funk  in  Farmers'  Bulletin  635,  published  by  the 
Department  of  Agriculture,  shows  that  the  average  farm  garden  produced 
for  home  consumption  fruit  and  vegetables  worth  $52.  If  the  non-reported 
gardens  produced  half  as  much,  or  $26  each,  the  total  would  be  $18,624,000 
for  1909.  This  amount  has  been  varied  in  other  years  in  proportion  to 
the  combined  value  of  the  reported  crops  of  beans  and  white  and  sweet 
potatoes. 

1  Published  by  the  Bureau  of  Crop  Estimates. 


, 


AGRICn/ITl;i: 


51 


TABLE  31 


AN   ESTIMATE  OF  THE  VALUE  OF  CROPS  SOLD  OFT  THE  FARMS  OR 
CONST' MED  DIRECTLY  BY  FARM   FAMILIES 


A 

B 

C 

I) 

E 

F 

G 

H 

1 

J 

Value 

Net 

Agricul- 

Value 

of 
crops 
fed  to 

of 

value 

Census  . 
estimate 
of  value 

Of  all 
recorded 

tural 

Prob- 

Value 

seeds 

Of  all 

Depart- 
ment 
estimate 

Ratio 

able 

value 
of  all 

of 
non- 
re- 

Total 
value 
of  all 

t-ut  - 
i  ings 

and 

crops 

con- 
sumed 

Year 

of  value 
of  all 

of 
B  to  C 

record- 
ed crops 

corded 
gar- 

crops 
(Mil- 

live- 
stock 

plants 
for 

on  or 
sold  off 

crops 
(Mil- 

recorded 
crops  c 

-.Mil- 
lions) 

dens/ 
(Mil- 

lions 

E  +  F 

on 

farms/ 
(Mil- 
lions) 

next 
year's 

farms 
(Mil- 

(Mil- 

C X  D 

lions) 

crop.' 

lions) 

lions) 

(Mil- 

G— 

lions) 

(H  +  I) 

1909 .  . 

$  5,487" 

$  5,487 

1 . 000  d 

8  5,487 

819 

8  5,506 

$2,601 

SI  43 

82,762 

1910. . 

5,486 

.995" 

5,461 

17 

5.17s 

2,645 

138 

2,696 

1911.  . 

5,562 

.991  e 

5,511 

20 

5,531 

2,793 

153 

2.5X5 

1912. . 

5,842 

.986* 

5,762 

18 

5,780 

2,826 

139 

L'.Slli 

1913.  . 

6,133 

.982« 

6,020 

20 

6,040 

2,924 

1  15 

2,971 

1914.  . 

6,112 

.977* 

5.971 

is 

5,989 

2,985 

LS4 

2,820 

1915. . 

0,907 

.972e 

6,717 

20 

6,737 

3, 1 82 

21 17 

3.347 

1916.. 

9,054 

.968* 

8,763 

35 

s.798 

3,926 

331 

1.5  11 

1917.  . 

13,479 

.  963  e 

12,983 

50 

13,033 

6,209 

395 

6,429 

1918.  . 

14,094 

.959* 

13,511 

47 

13,558 

5,989 

450 

7,119 

1919. . 

$15,295  6 

16,035 

.954^ 

15.295 

52 

15,:;  17 

6,550 

434 

S,3f)2 

1920 

10,465 

.949" 

9,935 

45 

9,980 

4,ii(ll 

2g2  ■ 

5,094 

°  Statistical  Abstract  for  1916,  pp.  155   156. 

b  Calculated  from  data  in  Press  Summary  of  April  1  1,  1921,  furnished  by  the  Census. 
r  Monthly  Crop  Reporter  for  December  and  Yearbooks  of  the  Department  of  Agricul- 
ture. 

''  Computed  by  division. 
e  Interpolated  along  a  straight  line. 
/  For  mode  of  estimation,  see  text. 
9  Rough  preliminary  estimate. 


Table  31  indicates  that  between  1914  and  1919  there  was  an  enormous 
increase  in  the  book  income  of  agriculturalists  from  the  sale  or  consump- 
tion of  crops  and  that  this  book  income  diminished  very  sharply  from  1919 
to  1920.    These  fluctuations  were  doubtless  due  far  more  to  price  changes 

than  to  variations  in  physical  out  put. 

§  3e.  Payments  by  Agriculture  for  the  Products  of  Other  Industries 

In  computing  the  net  value  product  of  agriculture,  it  is,  as  before  ex- 
plained, necessary  to  deduct  from  the  gross  output  amounts  paid  to  other 

recorded  industries  for  their  services.    The  chief  deductions  made  are  those 


52  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

for  the  cost  of  agricultural  implements,  fertilizers,  automobiles  used  in 
farm  business,  harness  and  saddles,  fire  insurance,  and  interest  paid 
to  banks.  The  estimates  of  these  quantities  have  been  recorded  in 
Table  3J. 

The  value  of  agricultural  implements  purchased  by  farmers  has  been 
estimated  for  the  Census  years  by  subtracting  from  the  values  of  those 
reported  as  manufactured  the  excess  values  of  exports  over  imports,  and 
multiplying  the  remainder  by  L201  in  order  to  allow  for  the  profits  made 
by  retailers.  The  interpolation  for  the  intercensal  years  has  been  based 
upon  an  index  representing  the  product  of  the  tons  of  agricultural  imple- 
ments shipped  on  the  railways  (as  reported  by  the  Interstate  Commerce 
Commission),  and  the  prices  of  agricultural  implements  (as  compiled  from 
the  records  of  the  United  States  Department  of  Agriculture  and  the  Inter- 
national Harvester  Company). 

That  not  all  of  the  implements  purchased  are  used  up  in  the  year  when 
bought  is  evidenced  by  the  Census  report  indicating  an  increase  in  the 
physical  supply  between  1910  and  1920  amounting  to  about  41  per  cent  of 
all  purchases  during  the  decade.  The  remaining  59  per  cent  has  therefore 
been  assumed  to  represent  the  current  cost  to  the  industry. 

The  Census  records  the  amount  paid  by  farmers  for  fertilizer  in  the 
Census  years.  For  the  intervening  years,  the  amounts  have  been  esti- 
mated on  the  basis  of  the  figures  in  the  American  Fertilizer  Handbook,  a 
publication  which  reports  for  each  year  the  approximate  number  of  tons 
of  fertilizer  used  in  the  United  States  and  also  the  prices  of  leading  vari- 
eties. The  average  price  per  ton  has  been  estimated  therefrom  and  multi- 
plied by  the  tons  used  in  order  to  obtain  an  estimate  of  the  total  value. 
This  estimate  has  been  corrected  by  comparing  with  the  amount  reported 
in  the  Census  years  and  the  interpolation  has  been  carried  out  according 
to  the  usual  ratio  method,  using  a  smooth  curve  for  estimating  the  ratios 
in  the  intercensal  years. 

It  is,  of  course,  impossible  to  say  just  what  share  of  the  expense  of  auto- 
mobiles used  on  farms  should  be  allowed  as  a  business  cost  and  how  much 
should  be  charged  against  pleasure;  nevertheless,  some  rough  apportion- 
ment must  be  made.  According  to  the  National  Automobile  Chamber  of 
Commerce,2  farmers  in  1919  operated  32.6  per  cent  of  all  cars.  These 
cars  are  perhaps  somewhat  smaller  than  city  cars  on  the  average  but 
probably  make  up  at  least  one-fourth  of  the  automobile  value  of  the  coun- 
try.  By  combining  this  figure  with  others  arrived  at  in  the  study  of  the 
industry  of  repairing  automobiles,  one  is  led  to  the  conclusion  that  if  40 
per  cent  of  total  costs  be  charged  to  business  uses,  the  figures  presented 

1  Ratio  based  upon  a  study  of  the  Federal  Trade  Commission  report  on  the  Agricultural 
Implement  Industry. 

-  Fads  and  Figures  of  tl><  Automobile  Industry,  1920,  p.  13. 


AGRICULTURE  53 

in  Table  3J,  may  represent  a  rough  approximation  to  the  business  expense 
to  fanners  of  the  automobiles  which  they  operate. 

The  amount  expended  for  harness  and  saddles  has  been  estimated  by  a 
rather  complex  process  which  presumably  gives  results  not  very  far  from 
the  truth.  The  gist  of  the  plan  is  as  follows:  For  the  Census  years  1909, 
1914,  and  1919,  the  quantity  of  harness  and  saddlery  manufactured  is 
recorded.  From  this  amount  in  each  case  the  value  of  exports  has  been 
subtracted,  there  being  no  imports  recorded.  It  has  been  assumed  that, 
of  the  remainder,  farmers  use  the  same  proportion  as  farm  horses  and  mules 
constitute  of  all  horses  and  mules.  The  interpolations  for  the  intercensal 
years  have  been  made  on  the  basis  of  an  index  representing  the  product 
of  the  number  of  horses  and  mules  on  farms  and  the  price  of  harness  to 
farmers,  both  figures  being  taken  from  the  Monthly  Crop  Reporter  pub- 
lished by  the  Agricultural  Department.  The  customary  ratio  method 
has  been  used,  the  ratio  for  the  intercensal  years  being  interpolated  along 
a  smooth  curve. 

Farmers  pay  a  considerable  amount  annually  for  fire  insurance  and  for 
interest  on  loans  from  banks,  but  there  is  no  information  available  throw- 
ing any  definite  light  on  the  size  of  either  of  these  quantities.  The  assump- 
tion has  been  made  that  the  excess  of  interest  paid  to  banks  over  interesl 
received  therefrom  amounts  to  1  per  cent  of  the  total  crops  and  animal 
products  sold  or  consumed.  A  study  of  the  reports  of  the  Comptroller 
of  the  Currency  for  the  smaller  banks  indicates  that  it  is  improbable  that 
the  amount  is  much  larger  than  this,  but   it  may  be  somewhat  smaller. 

The  cost  of  fire  and  tornado  insurance  has  been  assumed  to  be  one- 
tenth  of  one  per  cent  of  the  value  of  all  farm  buildings.  The  value  of  the 
buildings  is  given  by  the  Census  of  1910  and  has  been  estimated  for  1920 
on  the  basis  of  the  preliminary  States  reports  already  published.  The 
interpolation  has  been  made  along  a  smooth  curve. 

An  important  deduction  which  is  omitted  from  the  li<t  here  given  is  the 
amount  of  taxes  paid  by  fanners  for  services  rendered  by  the  various 
branches  of  government  to  their  business.  This  item  has  been  left  out 
because  of  the  impracticability  of  estimating  what  pari  of  the  service  of 
government  benefits  the  farmer  as  an  entrepreneur  and  what  part  con- 
tributes to  his  needs  as  a  consumer.  The  failure  to  allow  for  this  expense 
makes  the  net  value  product  of  agriculture  as  here  stated  somewhat  larger 
than  the  correct  figure  and  also  makes  the  percentage  of  the  value  product 
recorded  as  being  paid  to  employees  slightly  smaller  than  it  really  is.  The 
error  is,  however,  presumably  not  large  enough  to  be  of  very  serious 
moment. 


54 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION. 

TABLE  3J 


DEDUCTIONS  FROM  THE  GROSS  VALUE  PRODUCT  OF  AGRICULTURE  ON 
ACCOUNT  OF  BUSINESS  PAYMENTS  MADE  TO  OTHER  INDUSTRIES 


(Millions  of  dollars) 


Calendar 

year 

Total 

deduc- 
tions 

Value 
of  im- 

pie- 
ments 
pur- 
chased a 

Value  of 

fertil- 
izers pur- 
chased a 

Expense 
for 

business 
use  of 

automo- 
biles a. 

Value  of 
harness 
and  sad- 
dles pur- 
chased a 

Expense 
of  in- 
surance 
against 
fire  and 
wind0 

Interest 
paid  to 
banks 

for 
loans  a 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

$    319 
384 
404 
405 

449 
467 
446 
551 

785 
1,031 
1,276 
1,300 

$  85 
116 
103 
107 

122 
93 
90 

111 

149 
183 

187 
239 

$115  b 
135 
160 
147 

161 
188  & 
160 
162 

222 

294 
329  6 
360  ^ 

$     6 

9 

20 

32 

42 

58 

83 

116 

186 
274 
417 
400  c 

$  57  ^ 
57 
59 
58 

58 
57  & 
64 

77 

116 
139 

177& 
177 

1  6 

6 

7 
7 

7 
7 
7 
8 

8 

8 

9 

11 

$  50 
60 
56 
54 

60 
62 
65 
76 

103 
133 
156 
110 

a  For  mode  of  estimating  these  items,  see  the  text. 
b  Derived  from  the  Census. 
c  A  guess. 

The  indications  from  Table  3 J  are  that  the  combined  deductions  form 
a  sum  which  is  relatively  small  as  compared  to  the  net  value  product  of 
this  industry. 

§  3f.  The  Net  Value  Product  of  Agriculture 

We  are  now  in  a  position  to  estimate  the  total  net  value  product  of 
the  industry.  In  making  up  this  aggregate,  it  seems  necessary  to  add  to 
the  combined  value  of  crops  and  animal  products  a  small  allowance  for 
the  improvement  in  farm  lands  brought  about  by  the  labor  of  the  farmer. 
This  item  should  be  clearly  distinguished  from  the  increase  in  farm  values 
caused  by  currency  inflation  or  relative  increase  in  urban  population.  The 
mode  of  estimating  the  additional  land  value  created  by  the  efforts  of 
farmers  has  been  to  subtract  the  farm  acreage  in  1910  from  that  in  1920, 
distribute  this  amount  among  the  various  intervening  years,  and  multi- 
ply the  estimated  acreage  increase  in  each  year  by  the  current  value  of 
land  per  acre.  This  average  land  value  has  been  calculated  from  the  Cen- 
sus reports  and  the  index  of  land  values  found  in  the  Department  of  Agri- 
culture's  Monthly  Crop  Reporter. 

Another  source  of  income  to  farmers  which  is  of  considerable  importance 


AGRK  QLTURE 


oo 


is  the  rental  value  of  farm  homes.  Some  time  was  devoted  to  estimating 
this  amount  but  the  ultimate  conclusions  reached  were  thai  the  nel  rent 
was  just  about  equalled  by  the  expense  for  materials  needed  for  the  con- 
struction of  all  farm  buildings  and  fences.  Under  these  circumstances,  it 
was  decided  to  omit  both  items  from  the  computation. 

Table  3K  summarizes  the  chief  factors  entering  into  the  net  value  prod- 
uct of  agriculture. 

TABLE  3K 

AN  ESTIMATE  OF  THE  TOTAL  NET  VAN  E  PR(  >1)UCT  OF  AGRICULTURE 
IN  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

Calendar 
year 

Value  of 

animal 

products  " 

(Millions) 

Nit   value 
of  crops 

consumed 
or  sold  off 

farm  c 
(Millions) 

Increase  in 
land  value 
due  to  im- 
provements 

by  farmers  d 
(Millions 

Business  ex- 
penditure for 

products  of 
other  in- 
dustries ' 
(Millions) 

Net    Value 

product  of 

agriculture 

Mil  liens) 

B+C+D-E 

1909 . . 

$2,218 
3,277 
2,968 
2,585 

2,989 

;;,:;.59 
3,166 
3,041 

:;.902 

6.  lv.) 
7,228 
5,882  b 

$2,762 
2,696 

2,5-.") 
2,816 

2,971 
2,820 
3,347 
4,541 

6,429 
7,119 
8,362 
5,094 

$  25 

139 

219 

290 

376 
328 
310 

218 

174 
105 
520 

177 

S    319 
384 

lot 
405 

149 
167 
146 

551 

785 
1,031 
1,276 
1,300 

$  4,686 
5,728 
5,368 
5,286 

5,887 
6,040 
6,376 

7,249 

9  720 

1910 

1911 

1912 

1914 

1915 

1916 

1917 

1918 

12,682 

1919 

1  L835 

1920 

«  See  Table  3H. 

b  Rough  preliminary  figures  only. 

e  See  Table  31,  Column  J. 

d  For  mode  of  derivation,  see  text. 

«  See  Table  3J. 

The  net  value  product  of  agriculture  evidently  increased  very  rapidly 
between  1915  and  1919,  but  suffered  a  sharp  decline  in  1920. 


§  3g.  The  Share  of  the  Employees 

It  is  desirable  next  to  learn  what  share  of  this  net  value  product  is  paid 
out  in  the  form  of  wages  or  salaries  (including  under  these  heads,  board 
and  lodging  furnished  to  employees),  and  also  the  average. wage  paid  per 
employee.    The  mode  of  estimation  used  is  shown  in  Tables  3L,  3M,  and 

3  N. 


56 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  3L 


AN  ESTIMATE  OF  THE  AGGREGATE  OF  WAGES  AND  SALARIES  PAID  BY 

FARMERS  TO  EMPLOYEES 


A 

B 

(' 

D 

E 

F 

Calendar 
year 

Wages  of  farm 

hands 

(Census  years) 

(Thousands) 

Index  of  total 
payments  to 
farm  labor  c 
(Thousands) 

Ratio  of 
B  toC 

Estimated 
total  wage 

of  farm 

hands 

(Millions) 

C  X  D 

Estimated 
total  wages 
paid  to  em- 
ployees on 

farms/ 
(Millions) 

He 

10 

1909. . 

1910 

1911.  .  . 
1912. . . 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

$651,611" 
$1,363,454  & 

7,918 
8,000 
8,546 
8,710 

9,100 

8,980 

9,330 

10,170 

12,890 
15,390 
18,720 
22,000 

82.29^ 

81.37 e 

80.42 e 

79.47 ' 

78 . 52  e 
77 . 67  e 
76 . 62  e 
75 . 77  e 

74. 72* 
73. 87* 
72 . 83  d 
71.97* 

$    652 
651 
687 
692 

715 
697 
715 
771 

963 
1,137 
1,363 
1,583 

$    717 
716 
756 
761 

786 
767 
786 
848 

1,059 
1,251 
1,500 
1,742 

a  Census  of  Agriculture,  1910,  Vol.  V.,  p.  563.    Includes  board  and  lodging. 

b  Preliminary  bulletin  of  the  Census,  June  29,  1921. 

c  The  product  of  the  acreage  of  leading  crops,  and  the  average  monthly  wage  of 
farm  hands  without  board,  as  reported  by  the  Bureau  of  Crop  Estimates  of  the  De- 
partment of  Agriculture. 

d  Computed  by  division. 

e  Interpolated  along  a  straight  line. 

/Assumed  that  domestics  receive  one-tenth  the  total  wages  paid  farm  hands.  The 
allowance  here  is  for  only  that  share  of  domestic  labor  required  to  facilitate  the  pro- 
ductive work  of  the  farm. 


, 


AGRICULTURE 


01 


TABLE  3M 


AN  ESTIMATE  OF  THE  NUMBER  OF  EMPLOYEES  ON   THE   FARMS  OF 
THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

Year 

Total  wages 

paid  to  farm 

hands  ° 

(Millions) 

Estimated 

average  full- 
time  wage 
for  farm 
hands  d 

Estimated 
number  of 
full-time 
hands  re- 
quired 
(Thousands) 
B 

C 

Estimated 

fraction  of 
workers  ac- 
tually 

employed  c 

Number  of 
farm  hands 

attached  to 

t  In'  industry 

(Thousands  i 

D 

E 

Number  of 

employees 

at  tached  to 

the 

industry  e 
Thousands) 

1909 

1910 

1911. .  .  . 
1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920.  .  .  . 

S    652 
651 
687 
692 

715 
697 
715 
771 

963 
1,137 
1,363 

1,583 

$363 
352 
367 

378 

389 
38(5 
389 
422 

526  & 
652 
767 
846 

1,794 
1,849 
1  ,S73 
1,831 

1 ,837 
1,809 
1,838 
1,825 

1,832 
1,744 
1,778 
1,872 

.881 
.907 
.915 
.894 

.89.1 
.882 
.900 
.897 

.934 
.959 
.934 
.923 

2,037 
2,039 
2,047 
2,04  S 

2,052 

2,051 
2,042 
2,034 

1,961 
1,818 
1,903 
2,028 

2,376 
2,379 
2,388 
2,390 

2,394 
2,393 
2,382 

2.373 

2,288 
2,121 
2,220 

'-'.366 

a  See  Table  3L,  Column  E. 

b  A  weighted  average  of  summer  and  winter  wages  and  of  wages  of  different  classes 
of  laborers.  Data  from  the  1918  Annual  Report  of  the  Iowa  Bureau  of  Labor,  p.  139, 
and  from  the  Agricultural  Department  Crop  Report,  March,  191s,  p.  24. 

c  A  rough  estimate. 

d  Includes  value  of  any  food  and  lodging  furnished. 

e  Includes  the  estimated  number  of  domestic  servants  required  to  facilitate  the 
productive  work  of  the  farm. 


58 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  3N 


AN  ESTIMATE  OF  THE  AYERAOE  ANNUAL  EARNINGS  OF  FARM  EM- 
PLOYEES" IN  THE  CONTINENTAL  UNITED  STATES  AND  THEIR 
SHARE  IN  THE  NET  VALUE  PRODUCT  OF  AGRICULTURE 


A 

B 

C 

D 

E 

F 

G 

H 

Year 

Total 

money 

wages  h 

(Millions) 

Number 
of  em- 
ployees 
attached 

to  the  in- 
dustry <- 
(Thou- 
sands) 

Average 
annual 
earnings 
per  em- 
ployee 
B 

C 

Index  cf 

prices  of 
goods  con- 
sumed by 
manual 

and 

clerical 

workers  d 

Purchasing 
power  of 
average  an- 
nual earn- 
ings at 
prices  of 
1913 
D 

E 

Xci  value 
product 

of  agri- 
culture* 
(Millions) 

Per  cent  of 
value  prod- 
uct paid 
out  in  " 
wages  and 
salaries 
B 

G 

1909 
1910..  .  . 
1911..  .  . 
191? 

1913..  .  . 
1914..  .  . 
1915 
1916..  .  . 

1917..  .  . 
1918..  .  . 
1919 
1920..  .  . 

S    717 
716 
756 
761 

786 
767 
786 
848 

1,059 
1,251 
1,500 
1,742 

2,376 
2,379 

2,388 
2,390 

2,394 
2,393 

2.382 
2,373 

2,288 
2,121 
2,220 
2,366 

$302 
301 
317 
319 

328 
321 

330 
357 

46:; 
590 
675 
736 

955 

.  978 
.  984 
.994 

1.000 

1.01 
1.03 
1.10 

1.29 
1 .  58 
1.773 
2.165 

$316 
308 
322 
321 

328 
317 
320 
325 

359 
373 
381 
340 

$  4,686 
5,728 
5,368 
5,286 

5,887 
6,040 
6,376 
7,249 

9,720 
12,682 
14,835 

9,853 

15.3 
12.5 
14.1 
14.4 

13.4 
12.7 
12.3 
11.7 

10.9 

9.9 

10.1 

17.7 

and  domestic  servants. 
b  See  Table  3L,  Column  F. 
c  See  Table  3M,  Column  G. 

d  Bureau  of  Labor  index  carried  back  by  means  cf  a  special  study. 
e  See  Table  3K,  Column  F. 

The  preceding  tables  indicate  that  the  number  of  employees  attached 
to  the  industry  has  increased  but  slightly  during  the  decade,  a  conclusion 
which  accords  with  the  almost  .stationary  number  of  farms  shown  by  the 
Census.  Average  wages,  when  measured  in  terms  of  purchasing  power, 
were  just  a  little  higher  in  1920  than  in  1909,  though  the  years  1917  to 
1919  were  marked  by  a  noticeable  increase  in  the  prosperity  of  the  farm 
laborer.  In  all  years,  the  wages  of  farm  laborers  are  much  lower  than  are 
those  of  employees  in  most  other  lines  even  when  an  allowance  is  made  for 
board  and  lod»in<i'  a)  farm  prices,  bu1  Ibis  differential  is  doubtless  accounted 
for  to  some  extent  by  the  fact  that  food  and  lodging  are  valued  on  the  farm 
at  rates  much  cheaper  than  those  which  must  be  paid  by  city  workers  for 
goods  or  services  of  equal  quality.  The  fraction  of  the  total  net  value 
product  paid  out  in  salaries  and  wages  is  evidently  far  lower  than  in  most 
other  industries,  due  doubtless  to  the  large  number  of  farm  operators  who 


, 


AGRICULTURE 


59 


have  practically  no  hired  employees.  The  percentage  rose  sharply  in  1920, 
the  laborers  not  suffering  from  the  price  decline  as  severely  as  did  the 
entrepreneurs. 

§  3h.  The  Share  of  the  Entrepreneurs  and  Other  Property  Owners 

Table  30  shows  that  the  entrepreneurs  and  other  property  owners 
attained  unusual  prosperity  in  the  years  1917  to  1919  inclusive,  but  that 
1920  was  for  them  materially  the  worst  year  in  the  decade,  their  income 
being  less  than  half  what  it  was  in  the  year  previous. 

TABLE  30 

AN  ESTIMATE  OF  THE  SHARE  OF  THE  ENTREPRENEURS  AND  OTHER 
PROPERTY  OWNERS"  IN  THE  NET  VALUE  PRODUCT  OF  AGRICUL- 
TURE 


A 

B 

C 

D 

E 

F 

Year 

Total  net 

value 
product  b 
(Millions) 

Share  of 
employees'1 

(Millions) 

Share  of  entre- 
preneurs and 
other  property 
owners 
(Millions) 
B  — C 

Index  of 
prices  of 

goo  Is  con- 
sumed by 
workers  and 

well-t  o-do 
families  d 

Purchasing 

power  of  share 
of  eni  repreneurs 
and  other  prop- 
erty owners  a1 
price  of  1913 
(Millions 
D 

E 

1909 

1910 

1911 

$  4,686 
5,728 
5,368 
5,286 

5,887 
6,0m 
6,376 
7,249 

9,720 
12,682 
14,835 

9,853 

$    717 
716 
756 
761 

786 

767 
786 
848 

1,059 
1,251 
1,500 
1,742 

$  3,969 
5,012 
4,612 
4,525 

5,101 
5,273 
5,590 
6,401 

8,661 
11,432 
13,335 

8,111 

.955 
.978 
.984 

.995 

1.000 
1.011 
1.023 
1.097 

1 .  280 
1    517 
1.717 
2.124' 

$4,156 
5,124 
4,687 

1912 

1913 

4,547 
5,101 

1914 

1915 

1  >16 

5.215 
5,464 
5,835 

lr)17 

1918 

1919 

1920 

6,766 
7,390 
7,634 
3,819' 

a  Includes  owners  of  rented  farms  and  owners  of  farm  mortgages. 
6  See  Table  3K,  Column  F. 
c  See  Table  3L,  Column  F. 

d  An  average  of  the  indices  for  the  working  classes  and  for  families  spending  $5,000 
on  consumption  goods,  the  weights  used  being  3  and  1  respectively. 
e  Rough  preliminary  estimate. 

§  3i.  The  Physical  Output  of  Agricultural  Produce 

It  is  also  of  interest  to  see  whether  the  output  of  the  industry  is  increasing 
or  diminishing.    This  point  is  covered  by  the  figures  in  Table  3P. 


GO 


THE  ESTIMATE  BY  SOURCES  OE  PRODUCTION 


TABLE  3P 


AN  ESTIMATE  OF  THE  VALUE  AT  PRICES  OF  1913  OF  ALL  PRODUCTS 
CONSUMED  BY  FARMERS  OR  SOLD  OPT  THE  FARMS  OF  THE  CON- 
TINENTAL UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

H 

Crops 

Animals  and  animal  products 

All 
products 

Value  at 

Value  at 

Value  at 

Index  of 

prices  at 

December 

1st 

prices  of 

Value  at 

average 

Value  at 

Year 

prices  of 

December 

average 

Index  of 

prices  of 

1913 

December 

1st,  1913 

prices  of 

average 

1913 

prices 

1st « 

(Millions) 

year  b 

prices  of 

(Millions) 

(Millions) 

(Millions) 

B 
C 

(Millions) 

yeare 

E 

F 

D  +  G 

1909. . 

$2,762 

.957^ 

$2,886 

$2,218 

.891 

$2,489 

$5,375 

1910. 

2,696 

.887^ 

3,039 

3,277 

.987 

3,320 

6,359 

1911. 

2,585 

.997  c 

2,593 

2,968 

.850 

3,492 

6,085 

1912. . 

2,816 

.879  c 

3,204 

2,585 

.925 

2,795 

5,999 

1913. . 

2,971 

1.000c 

2,971 

2,989 

1.000 

2,389 

5,960 

1914. . 

2,820 

.883  c 

3,194 

3,359 

1 .  022 

3,287 

6,481 

1915.. 

3,347 

.969  c 

3,454 

3,166 

.963 

3,287 

6,741 

1916. . 

4,541 

1.610c 

2,821 

3,041 

1.098 

2,769 

5,590 

1917.. 

6,429 

2.050c 

3,136 

3,902 

1.557 

2,506 

5,642 

1918.. 

7,119 

2.101c 

3,389 

6,189 

1.851 

3,344 

6,733 

1919. . 

8,362 

2.436c 

3,433 

7/22S 

1 .  962 

3,684 

7,117 

1920. . 

5,094 

1.401c 

3,636 

5,882/ 

1.833 

3,209 

6,845 

"  See  Table  31. 

b  See  Table  3H. 

c  Computed  from  table  in  Monthly  Crop  Reporter,  Dec.  1920,  p.  150,  weighting  crops 
in  proportion  to  importance  of  sales  or  home  consumption. 

d  Estimated  on  basis  of  index  of  all  crops.  See  Yearbook  of  Department  of  Agricul- 
ture, 1918,  p.  701. 

-  Average  of  prices  of  meat  animals,  poultry,  eggs,  and  dairy  products  weighted  in 
proportion  to  the  sales  of  each  in  1919.    Data  from  Monthly  Crop  Reporter. 

f  Rough  estimate  only. 

Table  3P  makes  it  clear  that  the  physical  volume  of  agricultural  prod- 
ucts has  t  ended  to  increase  slowly  during  the  decade,  1919  being  the 
banner  year. 

It  is  however,  of  greater  interest  to  learn  whether  the  output  per  person 
engaged  in  agriculture  is  increasing  or  diminishing  and  also  whether  the 
output  is  or  is  not  keeping  pace  with  the  growth  of  population  in  the  United 
States.    The  facts  in  this  connection  are  shown  in  Table  3Q. 


AGRICULTURE 


61 


TABLE  3Q 


AN  ESTIMATE  FOR  THE  CONTINENTAL  UNITED  STATES  OF  THE  OUT 
PUT  OF  AGRICULTURAL    PRODUCTS   PER   INHABITANT   AND   PER 
PERSON  ENGAGED  IN  AGRICULTURE 


A 

B 

C 

D 

E 

F 

G 

H 

Thousands  of  Persons  Engaged 

Estimated 

Value  of  Output  at  Prices  of 

in 

Agriculture 

Popula- 
tion of 
United 

1913 

Year 

Per  person 

Per  inhab- 
itant of 

the  United 
Sta1 
F-5-E 

Farmers 

Em- 
ployees d 

Total 

States/ 
June  30 
(Millions) 

Total/ 
(Million 

engaged  in 
agriculture 

F  -r  D 

1909 .  .  . 

6,330  c 

2,376 

8,706 

90.4 

$5,375 

$617 

$59 

1910.  .  . 

6,362  o 

2,379 

8,741 

92  2 

6,359 

727 

69 

1911.  .  . 

6,376  e 

2,388 

8,764 

93.8 

6,084 

694 

65 

1912.  .  . 

6,388  c 

2,390 

8,778 

95.3 

5,999 

.is:; 

63 

1913.  .  . 

6,400  c 

2,394 

8,794 

97  3 

5,960 

678 

til 

1914.  .  . 

6,410c 

2,393 

8,803 

99.2 

6,481 

736 

65 

1915.  .  . 

6,418  c 

2,382 

s.sOO 

100.4 

6,741 

766 

67 

1916.  .  . 

6,425  c 

2,373 

8,798 

101.7 

5,590 

635 

55 

1917.  .  . 

6,432  c 

2,288 

8,720 

103.1 

5,642 

647 

55 

1918.  .  . 

6,438  c 

2,121 

8,559 

104.2 

6,733 

786 

65 

1919.  .  . 

6,443  c 

2,220 

8,663 

104.8 

7.117 

821 

68 

1920. .  . 

6,448  b 

2,366 

8,814 

106. 0 

6,845o 

i ,  < 

64 

°  Abstract  of  Census  of  U.  S.  1910,  p.  265.  Number  of  farms  is  identical  with  num- 
ber of  farmers. 

b  Press  bulletin  of  Bureau  of  Census,  June  22,  1921. 

c  Interpolated  along  a  smooth  curve. 

d  See  Table  3M,  Column  G. 

e  Interpolated  between  Census  estimates  by  means  of  a  special  study  elsewhere  re- 
corded. 

/  See  Table  3P,  Column  H. 

o  Rough  estimate  only. 


The  figures  in  Column  G  show  that  the  gross  value  of  the  output  per 
person  engaged  in  agriculture  is  about  the  same  as  the  average  annual 
earnings  of  factory  or  railway  employees.  From  this  gross  output,  how- 
ever, the  agriculturalist  must  subtract  payments  for  interest,  insurance, 
fertilizers,  machinery,  etc.,  before  arriving  at  his  net  income  and  this  nel 
income  includes  not  only  payment  for  his  services  but  also  for  the  use  of 
any  property  which  he  may  possess  and  for  any  farm  work  performed  by 
his  wife  or  children.  It  seems  clear  then  that  when  farm  laborers  and 
farmers  are  considered  as  a  joint  group,  their  economic  condition,  if  meas- 
ured in  monetary  terms,  compares  unfavorably  with  that  of  the  employees 
of  railways  or  of  manufacturing  concerns. 

The  last  column  of  the  table  shows  that  gross  agricultural  output  is  just 


G2 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


about  keeping  pace  with  the  population  of  the  nation,  no  marked  trend 
being  discernible. 

§  3j.  The  Relative  Position  of  Agriculture  Among  the  Industries 

The  final  question  to  be  considered  is:  "Is  agriculture  playing  an  in- 
creasing or  diminishing  role  in  the  industry  of  the  country?"  This  query 
is  answered  by  Table  3R  which  shows  that  the  proportion  of  the  total 
value  product  of  all  industries  produced  by  agriculture  remained  nearly 
constant  until  1917  and  then  rose  very  sharply.  The  probabilities  are, 
however,  that  the  percentage  will  fall  very  materially  in  1920. 

TABLE  3R 


THE  PER  CENT  OF  THE  NET  VALUE  PRODUCT  OF  ALL  INDUSTRIES  IN 
THE  CONTINENTAL  UNITED  STATES  PRODUCED  BY  AGRICULTURE 


Year 

Total  net  value 

product  of  all 

industries  c 

(Millions) 

Net  value  product 

of  agriculture6 

(Millions) 

Per  cent  of  the  net 
value  product  originat- 
ing in  agriculture 

1909 

$28,775 
31,766 
31,188 
33,554 

35,580 
33,936 
36,109 
45,418 

53,860 

60,:;<w; 

65,000" 

$  4,686 
5,728 
5,368 
5,286 

5,887 
6,040 
6,376 
7,249 

9,720 
12,682 
14,835 

9,853  o 

16.3 

1910. 

18.0 

1911. 

17.2 

1912. 

15.8 

1913 

16.5 

1914. . 

17.8 

1915 

1916 

17.7 
16.0 

1917 

1918 

18.0 
21.0 

1919 

22.8" 

1920 

a  Rough  preliminary  estimate  only. 

b  See  Table  3K,  Column  F. 

c  Summary  compiled  from  the  reports  of  the  separate  industries. 

§  3k.  Returns  for  the  Efforts  of  Farm  Operators 

It  is  a  fact  worthy  of  comment  that  while  about  thirty  per  cent  of  the 
gainfully  employed  persons  in  the  United  States  are  engaged  in  agricul- 
ture, the  industry  normally  receives  only  about  seventeen  per  cent  of  the 
national  income.  In  a  preceding  paragraph,  attention  has  been  called  to 
the  relatively  small  average  income  received  by  farmers  and  agricultural 
laborers  when  considered  as  a  single  class.  Column  D  of  Table  3N  makes  it 
clear,  however,  that  agricultural  laborers  receive  low  wages.  Do  farm  opera- 
tors secure  high  returns  for  their  physical  and  mental  effort  and  managerial 
skill?    Table  3S  has  been  constructed  with  a  view  to  answering  that  query. 


AGRICULTURE 


63 


TABLE  3S 


AX  ESTIMATE  OF  THE  REWARDS  FOR  MANAGEMENT  AND  LABOR  RE- 
CEIVED BY  THE  FARMERS  OF  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

II 

I 

J 

Year 

Total 
value  of 

farm 
property 
including 
cash  used 
as  working 
capital  ff 
(Millions) 

As- 
sumed 

in- 
terest 

rate 

on 
invest- 
ment 

Rewards 
ascrib- 
ahle  to 

propert  y 
(Mil- 
lions) 
BXC 

Total  re- 
turns to 
entrepre- 
neurs and 

other 
property 
owners  d 
(Millions) 

Reward 

for 
farmer's 
manage- 
ment 
and  labor 
(Millions; 
E— D 

Num- 
ber of 

farm- 
ers e 
(Thou- 
sands) 

Aver- 
age re- 
war  I 
per 
farmer 
F 

G 

Index 

of 

prices 

of  goods 

con- 
sumed 
by  far- 
mers / 

Average 
reward 

per 

farmer 

•it  prices 

of  1913 

H 

I 

1901 
1910 
1911 
1912 

1913 
1914 
1915 
1916 

1917 
1918 

1919 
1920 

$40,059  c 
41,400" 
42,225  c 

42,917  c 

45  227  c 
46|619c 
48,199c 
52,687  c 

57,110  c 

64,122  c 
71,848  c 
78,707  b 

.05 
.05 
.  05 
.05 

.05 
.05 
.  05 
.05 

.05 
.  05 
.  055 
.085 

$2,003 
2,070 
2,111 
2,146 

2,261 
2,331 
2,410 
2,634 

2,855 
3,20ii 
3,951 
5,116 

$3,969 
5,012 
4,612 
4,525 

5,101 
5,273 
5,590 
6,401 

8,660 
11,432 
13,335 

8,111 

$1,966 
2,942 
2,501 
2,379 

2,840 
2,942 
3,180 

3,767 

5,805 
8,226 
9,384 
2,995 

6,330 
6,362 

6.376 
6,388 

6,400 
6,410 
6,418 
6,425 

6,432 
6,438 

6, 143 

6,448 

$311 
462 
392 
372 

444 
459 
195 
586 

903 
1,278 
1,453 

465 

.955 

.978 

984 

.995 

1.000 
1.011 

1 .  023 
1.097 

1 .  280 
1 .  547 
1.747 
2.124 

$326 
472 
398 
374 

444 
454 
484 
534 

705 
826 
833 
219 

«  Abstract  of  the  Census  of  1910,  p.  265. 

b  Preliminary  Census  bulletins  for  1920. 

c  Interpolated 

d  See  Table  30,  Column  D. 

e  See  Table  3Q,  Column  B. 

/  See  Table  30,  Column  E. 

9  1.01  times  the  value  of  farm  property  as  shown  by  the  Census — the  one  per  cent 
allowance  being  an  estimate  for  the  cash  and  bank  deposits  held  by  farmers  as  working 
capital. 

Since  we  do  not  know  what  percentage  '  of  all  farms  are  owned  by  active 
fanners,  it  is  impossible  to  ascertain  either  the  total  or  average  income  of 
this  class.  It  is,  however,  feasible  by  aid  of  the  material  at  hand,  to  make 
a  crude  estimate  of  the  amount  received  by  the  farmers  of  the  country,  as 
a  reward  for  their  physical  and  managerial  labor.  Such  an  estimate  in- 
volves the  assumption  that  a  percentage  return  should  be  allowed  on  the 
investment  before  calculating  the  payment  for  the  services  of  the  farmer. 
This  assumption  is  open  to  some  criticism,  but,  since  it  is  often  entirely 
practicable  for  the  farmer  to  sell  all  of  his  property  and  invest  it  in  secur- 
ities, there  seems  to  be  nothing  unreasonable  in  usine-  it  as  a  hypothesis. 
It  should,  however,  be  kept  firmly  in  mind  that  the  amounts  entered  in 

1  The  fact  that  many  rented  farms  art'  owned  by  men  who  operate  other  farms,  prevents 
the  computation  of  this  percentage. 


64  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

( Jolumn  J  arc  not  the  average  incomes  of  the  farmers  but  only  the  amounts 
which  they  could  count  as  pay  for  their  physical  and  managerial  services. 
Individual  farmers  who  were  property  owners,  may  well  have  made  or  lost 
several  times  the  recorded  sum  because  of  a  rise  or  fall  in  land  values  dur- 
ing the  year  and  that  part  of  their  income  assigned  to  the  interest  allow- 
ance on  the  current  value  of  their  property  may  have  been  far  larger  than 
the  remainder  ascribed  to  managerial  or  physical  effort  or  to  other  profits. 
( 'olumn  B  shows  a  gain  of  15  billions  in  the  value  of  farm  property  from 
1919  to  1920,  and,  while  most  of  this  nominal  gain  was  doubtless  merely 
a  reflection  of  the  rise  in  the  general  price  level,  yet,  in  some  sections,  farm 
lands  probably  rose  in  value  even  faster  than  commodities  in  general. 
\Y<  re  the  speculative  gains  in  such  instances  added  to  the  $219  recorded  in 
Column  J,  the  average  gain  for  farm  owners  in  1920  would  doubtless  com- 
pare much  more  favorably  with  other  years  in  the  decade.  In  connection 
with  the  latter  point  it  should  also  be  noted  that  the  extremely  low  calcu- 
lated reward  for  the  farmer's  labor  and  management  in  1920  was  occa- 
sioned to  a  considerable  extent  by  the  heavy  property  charge  resulting 
from  the  unusually  high  land  values  and  high  interest  rates  current  at  that 
time. 

The  indications  from  Table  3S  are  then  that  farmers,  even  though  they 
are  entrepreneurs,  and  belong  to  the  class  usually  considered  to  consist  of 
men  of  higher  talents  than  mere  employees,  nevertheless  obtain  on  the 
average  less  money  value  in  return  for  their  efforts  than  do  the  average 
employees  in  most  lines  of  industry.  Only  in  the  years  1918  and  1919  did 
they  receive  more  than  the  average  earnings  for  all  employees  in  the 
United  States,  while  in  1920  their  rewards  fell  to  a  mere  fraction  of  the 
average  wage  in  other  lines.  Even  though  the  same  money  will  buy  con- 
siderably more  of  certain  commodities  in  the  country  than  in  the  city,  it 
nevertheless  appears  that  the  average  farmer  can  scarcely  with  justice  be 
considered  a  pampered  child  of  fortune. 


. 


CHAPTER   1 
MINES,  QUARRIES,  AND  OIL  WELLS 

$  4a.  Sources  of  Information 

The  four  chief  sources  of  information  concerning  this  field  are  the  Cen- 
sus, the  reports  of  the  United  Stales  Geological  Survey,  the  United  Stales 
Income  Tax  data,  and  the  reports  of  various  State  Bureaus  devoted  to 
the  study  of  mining  or  labor  conditions.  Unfortunately,  the  State  reports, 
in  most  instances,  are  either  issued  irregularly  or  fail  to  furnish  informa- 
tion comparable  for  the  various  years  under  consideration.  This  necessa- 
rily results  in  a  distinct  loss  of  accuracy  in  the  estimates  based  thereupon. 

§  4b.  The  Share  of  the  Entrepreneurs  and  Other  Property  Owners 

The  share  of  the  entrepreneurs  and  other  property  owners  in  the  net 
value  product  consists  of  the  rents,  royalties,  and  interest  received  by  pri- 
vate parties  from  their  investments  in  this  field  plus  the  profits  derived 
from  the  mining  industry  by  the  private  or  corporate  entrepreneurs  oper- 
ating therein.  In  estimating  the  aggregate  of  rents  and  royalties,  it  lias 
been  assumed  that  these  payments  vary  in  proportion  to  the  gross  value 
of  mineral  products  in  the  United  States  as  reported  by  the  United  States 
Geological  Survey.  The  Census  of  1909  is  used  as  a  base.  Royalties  at  a 
fixed  rate  per  ton  would  not  increase  with  the  price  level  and  hence  con- 
tracts of  this  type  would  tend  to  make  the  estimates  for  the  later  years  too 
high.  On  the  other  hand,  many  royalties  become  proportionally  greater 
as  mineral  output  increases  in  value.  Contracts  of  this  variety  would 
tend  to  offset  the  effects  of  those  of  the  type  first  mentioned.  Since  the 
relative  weights  of  these  factors  arc  unknown,  the  assumption  that  they 
cancel  each  other  is  the  best  that  can  be  made.  The  resulting  estimates 
appear  in  Table  4 A. 

The  basic  estimates  of  profits  and  interest  payments  utilized  in  this 
study  are  those  shown  in  the  1918  report  of  the  United  States  Commis- 
sioner of  Internal  Revenue  on  Statistics  of  Income.  It  show-;  on  page  15 
that  interest  payments  by  mining  corporations  were  $67,010,715.  A 
study  of  the  reports  of  mining  corporations  as  given  in  Moody's  Manual 
of  Corporations  Statistics  indicates  that  about  97  per  cent  of  the  net  amount 
of  interest  paid  by  mining   corporations  goes  to  the  bondholders.     The 

65 


66 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  4A 


THE  ESTIMATED  AGGREGATE  OF  RENTS  AND  ROYALTIES  DERIVED 
FROM  THE  LEASE  OF  MINERAL  RIGHTS  IN  THE  CONTINENTAL 
UNITED  STATES 


A 

B 

C 

D 

E 

Calendar 
year 

Rents  plus 

royalties ; 

Census  years 

(Thousands) 

Gross  value  of  min- 
eral output  according 
to  Geological  Survey 
(Thousands) 

Ratio  of 
B  toC 
in  1909 

Estimated  total 

of  rents  and 

royalties 

(Millions) 

C  XD 

1909 . 

$72,945" 

$1,887,5826 
1,992,406  6 
1,927,532  6 
2,243,6306 
2,439,160  c 

2,118,306  c 
2,397,745  c 
3,514,600  c 
4,992,128  c 
5,543,456  c 

.03865 

$   73  <* 

1910. . 

77 

1911 

74 

1912 

1913 

87 
94 

1914 

1915 

1916 

82 

93 

136 

1917 

1918.. 

193 
214 

a  Includes  the  $64,155,000  reported  as  royalties  and  rent  of  mines  and  $8,790,000 
representing  an  estimated  rent  for  offices,  the  amount  being  one-fifth  of  the  item  en- 
tered as  "Rent  of  cffices'and  other  sundry  expenses."    See  the  Abstract  of  the  United 


States  Census  for  1910,  p.  541. 

6  Statistical  Abstract  of  the  U.  S.,  1913,  p.  217. 
c  Statistical  Abstract  of  the  U.  S.,  1919,  p.  243. 


total  bond  interest  paid  by  corporations  therefore  apparently  amounts  to 
about  $65,000,000. 

On  a  previous  page,  the  fact  has  been  noted  that  corporate  enterprises 
produce  about  95  per  cent  of  the  entire  output  of  the  mining  industry.  If 
their  funded  debt  represents  the  same  percentage  of  the  total,  it  appears 
that  in  1918  the  interest  thereon  for  the  entire  mining  industry  must  have 
been  approximately  $65,000,000,  divided  by  0.95  or  $68,400,000. 

The  assumption  has  been  made  that  the  interest  payments  in  the  earlier 
years  varied  in  the  same  ratio  as  did  the  similar  payments  made  by  25 
typical  mining  corporations,  the  records  of  which  appear  in  Moody's 
Manual  of  Corporation  Securities.  Since  the  amount  is  relatively  very 
small,  its  accuracy  is  a  matter  of  but  minor  importance. 

In  1918,  the  reported  net  income  after  the  deduction  of  interest  and 
taxes,  was  $.304,939,703. l  The  percentage  of  the  entire  gross  output  of 
minerals  produced  by  enterprises  in  the  corporate  form  increased  from 
86.3  2  in  1902  to  91.4  3  in  1909.     It  seems  probable,  therefore,  that,  by 

■  Statistic*  of  Income,   191N,  p.   16. 

-  U.  S.  Census  of  Mines  and  Quarries,  1902,  p.  67. 

3  U.  S.  Census  of  Mines  and  Quarries,  1909,  p.  32. 


, 


MIXES    QUARRIES,   AND   OIL   WELLS 


67 


TABLE  4B 


AN  ESTIMATE  OF  THE  TOTAL  INTEREST  RECEIVED  ON  INVESTMENTS 
IN    MIXES,    QUARRIES,    AND    OIL    WELLS    IX    THE    CONTINENTAL 

EXITED  STATES 


A 

B 

(' 

I) 

E 

Calendar  year 

Estimated 

interest    total 

tor  1918 
(Thousands) 

Interesl  on  funded 

del >t  paid  by  2~> 

typical  mining 

corporal  ions  h 

(Thousands 

Ratio  of 

n  to  c 

in  1918 

1  Ssl  imated  total 

interest  on 

investments 

(Millions) 

C  X  D 

1909 

1910 

$68,400" 

$5,496 

r,.974 

6,7.",:; 
6,876 
6,689 

7,392 
8,051 
7.S09 
7,566 
8,306 

8  234 

145 

49 

1911 

56 

1912 

1913 

1914 

1915 

57 
55 

61 
66 

L916 

ill 

1917 

1918 

62 
68 

a  For  derivation,  see  the  text. 

b  From  Poor's  and  Moody's  Manuals  <■/  Corjumilion  Securities. 

1918,  corporations  had  come  to  control  95  per  cent  of  the  value  of  mineral 
products.  If  so,  the  total  net  income  of  the  mining  industry  may  be 
estimated  as  about  .$321,000,000,  in  L918. 

The  reports  of  110  mining  and  oil  producing  corporations  cited  in 
Moody's  Analyses  of  Industrial  Investments  show  that  71.72  per  cent  of 
net  earnings  after  the  deduction  of  interesl  charges  were  paid  out  as 
dividends.  If  this  percentage  i  assumed  to  hold  for  all  enterprises,  the 
conclusion  is  that  the  total  disbursed  profits  in  1918  amounted  to  0.7172 
X  $321,000,000,  or  about  $230,100,000.  In  earlier  years,  these  disbursed 
profits  have  been  estimated  upon  the  basis  of  the  aggregate  reported  div- 
idends of  the  metal  mining  companies  reported  in  the  Engineering  and 
Mining  Journal  and  of  a  few  coal  and  iron  corporations  for  which  con- 
tinuous reports  are  given  in  Poor's  or  Moody's  Manuals.  These  dividends, 
as  reported,  contain  many  duplications  due  to  the  existence  of  holding 
and  interlocking  companies  and  they  also  include  payments  made  by  some 
concerns  engaged  largely  in  manufacturing.  The  result  is  that  their  sum 
is  decidedly  larger  than  the  net  amount  indicated  by  the  reports  of  the 
(  oimcissioner  of  Internal  Revenue.  The  mode  of  reduction  is  indicated 
in  Table  4C. 

Not  all  of  the  profits  of  mining  concerns  are  withdrawn  from  the  busi- 
ness by  the  owners,  a  very  considerable  fraction  being  saved.    In  the  case 


(>8 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


of  the  25  corporations  studied,  the  records  show  the  fraction  of  the  total 
profits  carried  to  surplus.  The  assumption  is  made  that  this  fraction 
applies  to  all  mineral  producing  enterprises.  The  estimates  based  upon 
this  premise  also  appear  in  Table  4C.  The  reduction  of  these  sums  to  a 
basis  of  purchasing  power  at  the  price  level  of  1913  is  shown  in  Table  4D. 

TABLE  4C 

AN  ESTIMATE  OF  THE  DISTRIBUTED  PROFITS  AND  BUSINESS  SAVINGS 
OF  ALL  MINING  CONCERNS  IN  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

H 

Cal- 
endar 
year 

Distributed 
profits  as 
indicated 
by  reports 
of  income 

tax  a 
(Thousands) 

Gross  divi- 
dends of 
selected 
mining  and 
oil  produc- 
ing cor- 
porations b 
(Millions) 

Ratio 

of 
B  toC 
in  1918 

Estimated 
distributed 
profits  of 
all  con- 
cerns 
(Millions) 
C  XD 

Ratio  of 
annual  sur- 
plus to  divi- 
dends in 
selected 
corporations 

Estimated 

business 

savings 

of  all 

concerns 

(Millions) 

E  X  F 

Estimated 
total 

profits  in- 
cluding 
savings  e 

(Millions) 
E  +G 

1909.. 
1910. . 
1911. . 
1912. . 
1913.. 

1914. . 
1915.. 
1916. 
1917. . 
1918. 

$230,100 

$141 
147 
151 
172 
200 

170 

187 
306 
449 
366 

.6280 

$  88 

92 

95 

108 

125 

107 
117 
192 
282 
230 

. 6236  c 

.3646c 
. 5954  e 
.3364c 

.3200c 
.7996c 
1.0878c 
. 5229  c 
. 3436  d 

$  55 
35 
35 
64 

42 

34 

94 
209 
147 

79 

$144 
127 
130 
173 
168 

141 
211 
402 
429 
309 

a  For  derivation,  see  text . 

b  These  items  are  the  respective  sums  cf  the  total  dividends  reported  in  the  January 
numbers  of  The  Engineering  and  Mining  Journal  for  mines  of  metals  other  than  iron 
and  of  the  dividends  of  eight  important  coal  and  iron  producing  corporations  as  re- 
ported in  Moody's  Manual  of  Corporal  ion  Securities. 

c  Calculated  from  the  records  of  25  typical  mining  corporations  as  reported  in  Moody's 
Manual  of  Corporation  Securities. 

>'  Calculated  from  the  records  cf  110  selected  mining  and  oil  corporations  reported  in 
Moody's  Analyses  of  Industrial  Investments,  1920.  This  ratio  corresponds  quite  closely 
to  one  calculated  from  the  reports  <f  the  25  typical  corporations  for  the  same  year. 

•  Mr.  W.  It.  Ingalls,  one  of  our  Directors,  in  an  unpublished  study  on  The  Value  of 
the  Minis  of  the  United  States,  estimates  the  average  annual  net  earnings  of  the  mines 
in  the  years  1911  to  1913  at  $330,000,000,  and  is  therefore  inclined  to  think  that  the 
figures  in  Column  H  are  somewhat  too  low  for  the  years  mentioned.  He  reaches  his 
result  by  using  as  a  basis  the  reports  of  the  U.  S.  Bureau  of  Internal  Revenue  on  the 
total  income,  before  deducting  Federal  taxes,  of  all  mining  corporations  in  1916.  Under 
the  law  at  that  time,  each  corporation  had  to  report  its  income  separately;  hence  if  one 
corporation  paid  dividends  to  another  corporation,  this  income  was  duplicated  in  the 
totals,  making  them  too  large.  As  Mr.  Ingalls  states,  the  8330,000,000  is  the  amount 
before  any  allowance  is  made  for  depletion.  It  also  takes  in  the  earnings  of  metallur- 
gical works  which  we  have  attempted  to  exclude.  For  our  purposes,  taxes  must  be 
deducted;  while  Mr.  Ingalls  has  used  the  income  figures  as  they  stand  before  taking 
out  the  tax  payments.  In  view  of  the  facts  just  cited,  it  is  evident  that  there  may  be 
no  real  discrepancy  between  the  estimates  of  Mr.  Ingalls  and  the  ones  here  presente  I. 


, 


MIXES,  QUARRIES    AND  OIL  WELLS 


69 


TABLE  4D 


AN  ESTIMATE  OF  THE  PURCHASING  POWER  OF  THE  BUSINESS  SAVINGS 
OF  CONCERNS  OPERATING  MINES,  QUARRIES,  AND  OIL  WELLS 


A 

B 

C 

D 

Calendar 
year 

Estimated  total 
savings0 
(Millions) 

Index  of  construc- 
t  ion  cos 
(Base,  1913) 

Equivalent  of  savings 
measured  in  new  con- 
struction at  prices  of 
1913 

(Thousands) 
B  -=-C 

1909        

$  55 
35 
35 
64 
42 

34 
94 

209 

147 

79 

.927 

.953 

.945 

983 

l.ooo 

.((00 

.992 

1.194 

1  .  47:5 

1.499 

$  59 

1910 

36 

1911 

37 

1912 

1913 

1914 

66 
42 

36 

1915 

1916 

1917 

1918 

94 

175 

100 
53 

a  See  Table  4C,  Column  G. 

b  Based  upon  Bureau  of  Labor  Statist  ics  indices,  combined  after  weigb.1  ing  as  follows: 
union  scale  of  wages,  3;  wholesale  prices  of  metals  and  metal  products,  2;  lumber  and 
building  materials,  1. 

The  notable  feature  brought  out  by  Tables  4C  and  4D  is  the  enormous 
increase  in  savings  during  the  period  immediately  preceding  the  entrance 
of  the  United  States  into  the  war  and  the  sharp  decline  thereafter.  The 
figures  in  the  last  column  of  'Fable  4D  show  that  this  increase  remains 
very  large  even  after  values  are  corrected  for  changes  in  the  price  level. 

Table  4E  summarizes  the  disbursements  to  the  entrepreneurs  and 
owners  of  property  used  in  the  mining  industry. 

It  is  evident  that  the  revenues  derived  from  mining  increase  1  materially 
during  the  latter  years  of  the  decade  under  consideration.  Since  this 
increase  is  presumably  due  primarily  to  war  conditions,  it  is  doubtful  that 
it  represents  any  permanent  tendency.  In  fact  available  reports  of  min- 
ing corporations  indicate  that  in  1919  and  1920  the  earnings  of  many 
companies  are   much   lower  and   in   some   instances  heavy  deficits   have 

The  Census  of  1909  indicates  tli.e  our  estimates  are  more  likely  to  be  too  high  than 
too  low,  for  it  shows  total  returns  to  entrepreneurs  and  investors  of  only  $164,218,893; 
and  from  this  amount  an  allowance  for  depletion  must  be  deducted  to  arrive  at  lin- 
net gain.  Both  the  dividends  shown  in  Column  C  and  the  value  of  mineral  output. 
as  estimated  by  the  U.  S.  Geological  Survey  (see  Table  IA.  Column  C)  point  to  an 
increase  from  1909  to  1913  of  something  less  than  one-third  over  the  L909  figures;  and 
this  increase  corresponds  with  the  estimates  recorded  in  Column  E.  Corporate  savings 
increased  less  rapidly  than  dividend  payments.  There  appears,  then,  to  be  QO  suffi- 
cient reason  for  modifying  the  estimates  here  presented. 


70 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  4E 


AN  ESTIMATE  <  >F  THE  TOTAL  REVENUES  DERIVED  BY  ENTREPRENEURS 
AND  PROPERTY  OWNERS  FROM  MINES,  QUARRIES,  AND  OIL  WELLS 


A 

B 

C 

D 

E 

F 

G 

Cal- 
endar 
year 

Profits 

with- 
drawn n 

(Millions) 

Total 

rents  and 

royalties '' 

(Millions) 

Interest  •' 
(except 

on  bank 
loans) 

(Millions) 

Total  revenues 
withdrawn  by 
entrepreneurs 
and  other  prop- 
erty owners 
(Millions) 
B  +  C+D 

Indices  of 
prices  of  con- 
sumption goods 
used  by  well- 
to-do  classes'' 

Value  of 
revenues  with- 
drawn at  price 
of  1913 
(Millions) 
E  -i-  F 

1909. . 
1910. 
1911. . 
1912. 
1913. . 

1914. 
1915. . 
1916. . 
1917 
1918. . 

$  88 

92 

95 

108 

125 

107 
117 

192 

2S2 
230 

$  73 

77 
74 
87 
94 

82 

93 

136 

193 

214 

$45 
49 
56 
57 
55 

61 
66 
64 

62 

68 

$207 
219 
225 
251 
275 

249 
276 
392 
537 
512 

.965 

.983 

.990 

1.000 

1.000 

1.011 
.999 
1.081 
1 .  225 
1.406 

$214 
222 
227 
251 
275 

247 
276 
363 
438 
364 

a  See  Table  4C,  Column  E. 
b  See  Table  4 A,  Column  E. 
<•  See  Table  4B,  Column  E. 

d  Simple  arithmetic  average  of  indices  for  classes  spending  respectively  $5,000  and 
$25,000  per  annum. 

occurred.  There  is  also,  of  course,  a  question  as  to  whether  in  calculating 
the  profits  reported,  sufficient  allowances  were  made  for  exhaustion  of  the 
properties.  A  failure  to  make  such  deductions  would  necessarily  exagger- 
ate the  nominal  profits  to  an  equal  amount. 

§  4c.  Total  Wages  and  Salaries 

The  share  of  the  value  product  which  requires  the  greatest  amount  of 
labor  to  estimate  is  that  going  to  the  employees.  To  arrive  at  figures  hav- 
ing any  validity  whatever,  it  was  necessary  to  depend  mostly  upon  State 
reports  and  many  of  these  are  very  incomplete.  The  process  followed  is 
summarized  in  Tables  4F  and  4G  for  the  coal  mining  industry  while  all 
other  mines  are  dealt  with  in  Table  4H. 


, 


MIXES,   QUARRIES,   AND   OIL  WELLS 


71 


TABLE  4F 


AX     ESTIMATE    OF    TOTAL    WAGES     AND     SALARIES     PAID     IN     THE 
BITUMINOUS    COAL    INDUSTRY*    OF    THE    CONTINENTAL    UNITED 

STATES 


(Values  in  Millions  of  Dollars) 


A 

B 

C                    D 

E 

F 

G 

H 

Estimated  total  payments  to  employees 
based  upon  reports  from 

Index  cf 
total  wages 

paid 
B+C+D 
2 

Total 

wages 

and 

salaries 

paid  in 

Census 

years 

Ratio  of 
F  to  E 

Total 

Cal- 
endar 
year 

Pennsyl- 
vania De- 
partment of 
Internal 
Affairs  a 

Kansas  and 

West  Vir- 
ginia Bureau 
of  Mines, 
and  Ohioc 
estimates  h 

Michigan 

Department 

of  Labor'/ 

salaries 

and 
wages 

paid 
EXG 

1909. . 
1910. . 
1911. . 
1912. . 
1913. . 

1914. . 
1915. . 
1916. . 
1917. . 
1918. . 

$277 
337 
328 
370 
398 

355 
319 
434 
613 

865 

$319 
348 
338 
365 
409 

359 
357 
416 
547 
634 

$    457 
538 
561 
593 
681 

630 
634 
723 

889 
1,211 

$  825 

954 

'.117 

1,032 

1,148 

1,029 
993 
1,212 
1,604 
2,104 

$290/ 

.3515 

$290 
335 
333 
363 

101 

362 

349 
426 
564 

711) 

o  Product  of  the  total  value  of  bituminous  c<  al  produced  in  the  U.  S.  (as  shown  by 
the  Statistical  Abstract),  and  the  ratio  of  wage  and  salary  payments  to  the  value  of 
the  coal  produced  (as  indicated  by  the  Pennsylvania  reports  for  each  year). 

''Obtained  by  calculating  an  average  full  time  annual  wage  for  miners  in  each  of 
the  three  States,  computing  the  mean  of  the  three  averages  and  multiplying  it  by  the 
estimated  number  of  full  time  employees  in  the  United  States  as  reported  by  the  U.  S. 
Bureau  of  Mines. 

''Wages  in  the  Hocking  Valley  field  estimated  from  data  in  the  Monthly  Labor 
lui  ivw  for  December,  1919,  pp.  225-226. 

d  The  product  of  the  number  of  tons  mined  (as  reported  by  the  V.  S.  Geological 
Survey)  times  the  cost  per  ton  cf  mining  coal  in  Michigan.  Since  Michigan  rates  are 
apparently  abnormally  high,  and  that  state  is  a  relatively  small  producer,  this  estimate 
is  only  given  one-half  the  weight  of  the  other  two. 

'•  Includes  the  small  fiel  Is  in  the  West  producing  anthracite. 

/To  the  $315,997,000  in  \va<j;es  reported  in  the  ( 'ensus  (if  Mines  and  Quarries  f(  r 
1909,  p.  183,  $159,000  has  been  added  to  cover  the  wages  (  f  Western  anthracite  mine-. 

an  1  $12,108,000  has  been  deducted  to  pay  for  the  COSt  of  powder  purchased  by  the 
miners.  Since  the  ('ensus  estimates  that  1.72  per  cent  of  the  bituminous  miners  were 
already  counted  in  manufacturing  (Census  of  Mine.-,  L909,  p.  17)  the  remainder  just 
obtained  lias  been  multiplied  by  0.9528. 


72 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  4G 


AX  ESTIMATE  OF  TOTAL  \\  AC  IIS    VXD  SALARIES  PAID  EX  THE 
ANTHRACITE  FIELD  AND  IN  ALL  COAL  MINES 


Calendar 
year 


B 


1909 

1910. 

1911. 

1912. 

1913. 


1914. 

1915. 
1916 . 

1917. 
1918. 


Average  pay- 
ments to  em- 
I  >1<  >yees  per  long 
ton  mined 


$1,240" 
1.254« 
1.250a 
1.345 « 
1.340«» 

1.340& 
1.330c 

1.548<* 

1.468'' 
1.919<* 


C 


Total  long 
tons  mined  e 
(Thousands) 


72,38  [ 
75,433 
80,771 
75,323 
81,719 

81,090 
79,400 
78,195 
88,939 

88,238 


D 


Total  wages 
and  salaries 

in  the 

anthracite 

industry 

(Millions) 

B  XC 


E 


$  90 

95 

101 

101 

109 

109 
106 
121 
131 

169 


Total  wages 
and  salaries 

in  the  bitu- 
minous in- 
dustry/ 
(Millions) 


S2!)0 
335 
333 
363 
404 

362 
349 
426 
564 
740 


Total  wages 

and  salaries 

in  the  coal 

mining 

industry 

(Millions) 

D  +  E 


$380 
430 
434 
464 
513 

470 
455 

548 
695 
909 


a  Annual  Report,  of  Pa.  Secretary  of  Internal  Affairs,  Part  III. 

b  Interpolated. 

c  Annual  Report  of  Pa.  Commissioner  of  Labor  and  Industry,  Part  I. 

''  Pa.  Depart  incut  of  Internal  Affairs,  Report,  on  Productive  industries. 

r  Statistical  Abstract  of  United  Slates. 

f  See  Table  4F,  Column  H. 

Statistics  pertaining  to  the  mines  of  stone,  metals,  and  miscellaneous 
minerals  are  very  scattered  and  disjointed;  hence  the  estimates  presented 
in  Table  4H  represent  a  combination  pieced  together  from  various  sources. 
The  fundamental  assumption  involved  is  that  wages  are  roughly  propor- 
tional to  the  value  of  output. 


MINES,  QUARRIES,   AND  OIL  WELLS 


73 


TABLE  4H 


AX  ESTIMATE  OF  TOTAL  WAGES  AND  SALARIES  FOR  ALL  EMPLOYEES 
OF  MINES,  QUARRIES,  AND  OIL  WELLS  EXCEPT  COAL  MINES 


A 

B 

C 

D 

E 

F 

G 

H 

Calen- 
dar 

year 

Index  of 

daily 
wages  a 

Days  of 
labor  per- 
formed in 
metal  mines 
and  quarries 
oftheU.S.6 
(Thousands 

Ratio  of 
Value  of  min- 
eral products 
(except  COal) 
to  value  of 
metal  and 

quarry 
products'* 

Index  of 
total  wages 

paid  in 

metal 

mines  and 

quarries 

BXCX  D 

Estimated 

wages  and 

salaries  in 

( !ensus  year 

(Thousands 

Ratio  of 
1    bo  1. 

Total 
wages  and 

salaries 

paid 

(Million,) 

E  XO 

1,000 

1,000 

1909  .  .  . 

1910  ..  . 

1911  ..  . 

1912  .  .  . 

1913  .  .  . 

1914  .  .  . 

1915  .  .  . 

1916  .  .  . 

1917  .  .  . 

1918  .  .  . 

.905 
.910 
.951 
.980 
1.000 

.953 

.998 

1.153 

1.387 

1 .  568 

67,680  c 

71,000  c 
71,1526 
76,650«» 
81,2206 

63,242  6 
67,3336 
80,6736 
79,0836 
72,0886 

1.330 
1  334 
1 .  369 
1.341 
1.378 

1.447 
1.418 
1.307 
1  .  333 
1   382 

81 ' 

86 

93 
101 
112 

s? 

95 
122 
1  16 
156 

$232,148/ 

2.851 

$232 
246 
264 
287 
319 

249 

272 
347 

117 
1  15 

°  Estimated  on  the  basis  of  wages  in  the  iron  minesof  Itasca  and  St.  Louis  Counties 
Minn.  (Biennial  Reports  of  Minn.  Bureau  of  Labor),  in  miscellaneous  mines  in  Pa. 
(Reports  of  Secretary  of  Internal  Affairs  and  of  Commissioner  of  Labor  and  [ndustrj  . 
in  the  gold  mines  of  the  U.  S.  (U.  S.  Bureau  of  Mine-;,  Bulletin  144,  p.  62),  and  in 
Tenn.  metal  mines  and  quarries  (Annual  Reports  of  Tenn.  Mining  Department). 

6  See  U.  S.  Bureau  of  Mines,  Technical  Papers  245  and  252. 

r  Estimated  as  being  proportional  to  the  value  of  metal  and  quarry  products. 

d  Based  upon  reports  of  the  U.  S.  Geological  Survey  and  the  U.  S.  Census  of  M 
(mil  Quarries. 

■  si  thousands  equals  the  product  of  B,  C,  and  I)  in  1909. 

f%  13,7 16,537,  duplicated  in  the  Census  of  Mfg.,  (see  Census  of  Mints  and  Quarries, 
1909,  p.  17)  has  been  added  to  $379,720,000,  the  total  wages  in  coal  mining  (see  Table 
4G),  and  the  sum  has  been  deducted  from  $655,584,467,  the  amount  reported  in  the 
Census  of  Mines  and  Quarries  for  1909. 

§  4d.  Number  of  Employees  and  Average  Earnings 

Wo  are  interested  not  only  in  the  total  wages  and  salaries  paid,  but  also 
in  the  total  number  of  persons  required  to  operate  the  mines,  quarries, 
and  oil  wells  of  the  United  States. 

The  United  States  Bureau  of  Mines  in  connection  with  its  statistics  of 
mine  accident:;  shows  the  number  of  men  at  work  in  the  principal  classes 
of  mines  and  quarries  each  year.  These  numbers  have  been  compared 
with  the  numbers  in  1909  working  in  the  maximum  month  in  each  industry 
as  shown  by  the  United  States  Census  of  Mines  and  Quarries.  Alter  con- 
sidering these  quantities  and  making  allowances  for  the  number  of  workers 
in  miscellaneous  industries  not  covered  by  the  reports  of  the  Bureau  of 


74 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


Alines,  the  figures  entered  in  Table  41  have  been  arrived  at. 
regarded  merely  as  rough  approximations  to  the  truth. 


They  must  bv 


TABLE  41 


TOTAL  NUMBER  OF  EMPLOYEES  ATTACHED  TO  THE  INDUSTRY  AND 
TOTAL  AND  AVERAGE  WAGES  PAID  IN  THE  MINES,  QUARRIES,  AND 
OIL  WELLS  OF  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

1) 

E 

V 

G 

H 

I 

J 

Employees  attached 

Ratio  of 

Total 

Average 

Wage 

s  and  sal 

anes 

to  industry  c 

total 

share 

annual 

Calen- 

( 

Millions, 

(Thousands) 

share  of 

of  em- 

compen- 

dar 

employees 

ployees 

sation 

year 

Of  coal 

Of  other 

Of  all 

Coal 

Other 

All 

to  total 

(Mil- 

per em- 

miners" 

miners  b 

miners 
B  +  C 

$    612 

mines 

725 

mines 

mines 
E+  F 

1,073 

wages  and 
salaries il 

lions) 
1.050XD 

ployee 
I  -G 

1909  .  . 

$380 

$232 

348 

1.050 

$    643 

$    599 

1910  . 

430 

246 

676 

740 

366 

1,106 

711 

642 

1911  . 

434 

264 

698 

751 

381 

1,132 

733 

647 

1912  .  . 

464 

287 

752 

759 

391 

1,150 

790 

687 

1913  .  . 

5.13 

319 

832 

764 

395 

1,159 

874 

755 

1914  .  . 

470 

249 

719 

767 

396 

1,103 

755 

649 

1915  .  . 

455 

272 

727 

771 

392 

1,163 

764 

656 

1916  .  . 

548 

347 

894 

774 

380 

1,154 

939 

814 

1917  .  . 

695 

417 

1,112 

776 

365 

1,141 

1,169 

1,025 

19 IS  .  . 

909 

445 

1,354 

779 

329 

1,108 

1,422 

1,283 

a  Table  4G,  Column  F. 

b  Table  4H,  Column  H. 

c  For  derivation,  see  text. 

d  Part  of  mining  is  done  under  contract,  the  Census  of  Mines  and  Quarries,  for  1909, 
p.  21,  showing  $30,690,000  for  contract  work,  being  5  per  cent  of  the  wage  bill  of  612 
millions.  The  total  pay  of  employees  evidently  amounts  therefore  to  105  per  cent  of 
the  wages  and  salaries  paid. 

§  4e.  Total  Net  Value  Product  and  Share  of  Employees 

We  are  now  in  a  position  to  estimate  the  total  net  value  product  of  the 
industry,  and  the  estimates  thereof  for  the  various  years  are  recorded  in 
Table  4 J. 

The  results  indicate  that  the  share  of  the  value  product  going  to  the 
emplo3^ees  tends  to  be  a  little  less  than  three-fourths  of  the  whole  and  that 
their  relative  share  diminished  materially  in  191(3  and  1917,  but  showed 
signs  of  recovery  in  1918. 

To  some  of  the  employees,  however,  the  average  purchasing  power  of 
their  annual  earnings  is  a  matter  of  as  much  interest  as  is  the  relative  size 
of  their  share  of  the  value  product,.1     The  employers'  direct  interest,  on 

1  Dr.  H.  W.  Laidler,  a  Director  of  the  Bureau  says:  "  An  increasing  number  of  progressive 
employees  feel  that  the  question  of  the  proportion  of  the  return  to  employees  is  of  greater 
importance  than  the  actual  size  of  that  return." 


S 


MINES,  QUARRIES,  AND  OIL  WELLS 


75 


TABLE  4  J 


AN  ESTIMATE  OF  THE  NET  VALEE  PRODUCT  OF  THE  MIXES,  QCARRIES, 
AND  OIL  WELLS  OF  THE  CONTINENTAL  UNITED  STATES  AND  THE 
PER  CENT  THEREOF  GOING  TO  THE  EMPLOYEES 


Millions  of  dollars 

A 

B 

C 

D 

E 

F 

Calen- 

Total net 

Per  cent  of 

dar 

Profits'' 

Interest 

Compensa- 

value 

\  alue  prod- 

year 

Rents  and 

(including 

on  funded 

tion  of 

product 

uct  going  to 

royalties  ° 

savings) 

debt* 

employees '' 

A  +  B  + 
C  +  D 

employees 

101)1) 

E    " 

1909..  .  . 

$  73 

$144 

$45 

$    643 

$    904 

71.0 

1910..  .  . 

77 

127 

49 

711 

964 

73.7 

1911..  .  . 

74 

130 

56 

733 

993 

73.8 

1912...  . 

87 

173 

57 

790 

1,108 

71.4 

1913.... 

94 

168 

55 

874 

1,191 

73.4 

1914.... 

82 

141 

61 

755 

1,039 

72.7 

1915. .  .  . 

93 

211 

66 

764 

1,133 

67.4 

1916..  . 

136 

402 

64 

939 

1,541 

60.9 

1917..  . . 

193 

429 

62 

1,169 

1.S53 

63 . 1 

1918... . 

214 

309 

68 

1,422 

2,013 

70 . 6 

«  See  Table  4A,  Column  E. 
b  See  Table  4C,  Column  H. 
c  See  Table  4B,  Column  E. 
d  See  Table  41,  Column  I. 

the  other  hand,  centers  mainly  upon  questions  pertaining  to  the  efficiency 
of  the  workers  in  producing  output.  Table  4K  throws  light  upon  the  situ- 
ation in  both  these  connections. 


§  4f.  The  Mineral  Output  Compared  to  Earnings  and  Population 

As  a  measure  of  the  output  of  the  mining  industry,  the  index  of  physical 
production  prepared  by  Professor  Edmund  E.  Day  has  been  used,  as  it  is 
presumably  the  best  criterion  available.  It  i-;  possible  that  it  exaggerates 
a  trifle  the  expansion  of  the  mining  industry  during  the  war  years,  for  it 
is  based  upon  data  concerning  the  production  of  leading  minerals,  and 
some  of  the  minor  industries  producing  materials  for  building  apparently 
declined  while  the  larger  fields  were  expanding.  However,  the  minerals 
covered  include  such  a  large  proportion  of  the  total  that  it  is  improbable 
that  any  error  from  this  source  is  large  enough  to  be  a  matter  of  serious 
moment  and,  at  any  rate,  its  effect  would  not  be  either  continuous  or 
cumulative;  hence,  it  seems  that  the  figures  are  amply  accurate  for  the 
purposes  at  hand. 


70 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  4K 


AN  ESTIMATE  OF  THE  PURCHASING  POWER  OF  THE  EARNINGS  OF  THE 
AVERAGE  EMPLOYEE  COMPARED  WITH  THE  AVERAGE  OUTPUT 
PER  EMPLOYEE 


A 

B 

C 

D 

E 

F 

G 

Calen- 
dar 
year 

Average 
annual 
earnings 
per  em- 
ployee" 

Index  of 
prices  of 

goods 

purchased 

by  workers'' 

Average 
earnings 
at  prices 
of  1913 
B 

C 

Index  of 

physical 

production 

of  minerals d 

Total  num- 
ber of  em- 
ployees 

attached 
to  industry 

(Millions) 

Index  of 

output  per 

employee 

E 

F 

1909 

1910. .. . 

1911 

1912 

1913. ... 

1914. ... 
1915. ... 
1916. .. . 

1917 

1918. . 

$    599 
642 
647 
687 
755 

649 

656 

814 

1,025 

1,283 

.955 
.978 
.984 
.994 
1.000 

1.01 
1.03 
1.10 

1.29 
1.58 

$627 
656 
658 
691 
755 

643 

637 
740 
795 
812 

675 
717 
692 
771 
809 

721 
810 
950 

986 
995 

1.073 
1.106 
1 .  132 
1 .  150 
1.159 

1 .  163 
1.163 
1 .  154 
1.141 
1    108 

629 
648 
611 
670 
698 

620 
696 

823 
864 
898 

«  See  Table  41,  Column  J. 

b  Bureau  of  Labor  Statistics  index  extended  back  by  special  investigation. 
c  See  Table  41,  Column  G. 

d  Day,  Edmund  E.,  Review  of  Economic  Statistics,  1921.  An  Index  of  the  Physical 
Volume  of  Production,  p.  22;  multiplied  by  a  suitable  factor  to  make  comparison  easy. 

Table  4K  shows  a  sharp  gain  in  the  purchasing  power  of  the  average 
miner's  wage  beginning  with  the  year  1916.  At  the  same  time,  a  marked 
increase  in  physical  output  is  noticeable;  in  fact  the  production  appears  to 
have  increased  to  a  considerably  greater  extent  than  the  earnings.  Fur- 
ther investigation  would  be  necessary  in  order  to  determine  whether  the 
larger  output  was  the  result  mainly  of  a  smaller  number  of  days  lost  per 
year,  more  strenuous  effort  put  forth,  or  an  improvement  in  mining 
machinery. 

Another  subject  of  general  interest  is  the  relation  between  the  output 
of  minerals  and  the  population  of  the  country. 

According  to  Professor  Day's  index,  our  mineral  output  increased  dur- 
ing the  decade  far  more  rapidly  than  population.  This  fact  is  brought 
out  in  Table  4L. 

Table  4L  indicates  that  the  exploitation  of  our  mineral  resources  is 
proceeding  more  rapidly  than  is  our  growth  in  population.  The  large 
increase  in  output  in  1916,  1917,  and  1918  presumably  was  called  forth 
mostly  in  response  to  war  requirements  and  hence  may  have  added  little 
or  nothing  to  the  permanent  national  industrial  equipment. 


, 


MIXES,  QUARRIES,   AND  OIL   WELLS 


77 


TABLE  4L 


THE  RELATIVE  CHANCES  IN  THE  PER  CAPITA  PRODUCTION  OF 
MINERALS  IN  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

Calendar  year 

Population  of  the  United 
States 

Day's  index  of 
physical  produc- 
tion of  minerals & 

Index  of  per  capita 

physical  production 

of  minerals 

100D 

Thousands  ° 

Index 

C 

1909 

1910 

90,370 
92,229 
93)811 

95,338 
97,278 

99,194 
100,428 
101,722 
103.059 
101,182 

100.0 
102.1 
103.8 
105.4 
107.7 

109.8 
111.1 
112.5 
114.1 
115.3 

100.0 
106.4 
102.6 
114.4 
119.9 

107.0 
120.1 
110.9 
1  16.4 
1  17.6 

100.0 
104.2 

1911 

1912 

98.8 
108.4 

1913 

1914 

1915 

111.3 

97.4 
108  1 

1916. . 

125.2 

1917 

128.3 

1918 

128.0 

a  See  Sec.  2a. 

6  Adjusted  from  the  figures  on  p.  22  of  Edmund  E.  Day's.  An  Index  of  the  Physical 
Volume  of  Production,  Harvard  Committee  on  Economic  Research,  1921. 


It  is  well  to  keep  in  mind  that  while  an  increase  in  mineral  output  is  a 
necessary  concomitant  of  industrial  progress,  it  nevertheless  is  far  from 
representing  a  clear  gain  since  it  necessarily  involves  a  diminution  in  the 
inventory  of  resources  upon  which  the  nation  must  depend  in  the  future. 


CHAPTER  5 

FACTORY  PRODUCTION 

(Covering  that  part  of  the  private  Manufacturing  Industry  included  in 
the  totals  presented  by  the  United  States  Census  of  1914.) 

§  5a.  Importance  of  the  Industry 

This  field  covered  in  1900  more  than  90  per  cent 1  of  the  entire  manu- 
facturing industry,2  and  in  1914  the  operations  carried  on  therein  increased 
by  nearly  ten  billions  of  dollars,  the  value  of  the  materials  worked  upon. 
This,  then,  is  a  division  of  the  first  magnitude,  and  it  is  highly  important 
that  all  estimates  therefor  be  made  with  the  highest  practicable  degree  of 
accuracy. 

Fortunately,  statistics  of  manufacture  of  different  types  are  abundant. 
While  it  is,  of  course,  impossible  to  obtain  an  analysis  from  year  to  year 
of  the  data  for  the  United  States  as  a  whole,  it  seems  feasible  to  make  a 
fairly  close  estimate  of  the  value  of  the  total  output  of  the  factories  of  the 
nation  for  each  year  since  1909. 

§  5b.  The  Gross  Value  of  the  Products 

The  distinction  between  the  gross  value  of  the  output  and  the  net  value 
product  of  the  manufacturing  industry  is  both  theoretically  sharp  and 
practically  important.  The  gross  value  consists  merely  of  the  summation 
of  the  values  of  the  respective  outputs  of  all  the  different  factories.  This 
evidently  includes  a  great  amount  of  duplication,  for  one  factory  ordi- 
narily works  on  the  materials  turned  out  by  another  plant.  The  net  value 
product,  on  the  other  hand,  is  the  added  value  resulting  from  the  services 
of  persons  and  material  things  employed  in  the  manufacturing  industry. 

The  plan  adopted  for  estimating  the  gross  annual  value  of  the  output  is 
as  follows: — 

1.  Forty-four  indicators  have  been  selected,  each  believed  to  represent 
fairly  well  the  course  of  production  in  some  particular  branch  of  the  man- 
ufacturing industry.  Except  in  two  cases,  only  those  indicators  have  been 
used  for  which  annual  figures  are  available  for  each  year  from  1909  to 

1  Compare  with  the  Census  of  Manufactures  for  1900,  Volume  7,  Part  I,  page  xxxvii. 
-  The  hand   trades  arc  included  in  the   general  field  of  manufacturing  but  are  not  enu- 
merated by  the  Census. 

78 


FACTORY  PRODUCTION"  79 

1918  inclusive.     In  these  two  instances,  adjustments  have  been  made  for 
the  years  for  which  informal  ion  is  lacking. 

2.  Every  indicator  has  been  reduced  to  the  form  of  an  index  number 
based  upon  the  output  for  1909. 

3.  Each  index  number  has  been  multiplied  by  a  weight  representing 
the  value  of  the  output  in  1914  in  the  field  which  the  indicator  represents. 
By  summating  the  products  and  dividing  by  the  sum  of  the  weights,  an 
average  index  number  has  been  obtained  for  cadi  year.  These  average 
index  numbers  presumably  portray  with  reasonable  accuracy  the  changes 
in  production  taking  place  from  year  to  year  in  the  manufacturing  field. 

While  the  indicators  chosen  seem  to  give  a  correct  picture  of  the  cyclical 
fluctuations  in  manufacturing,  their  trend  diverges  slightly  from  that  indi- 
cated by  the  Censuses  of  1909,  1914,  and  1919 — in  other  words,  the  rate  of 
growth  of  the  manufacturing  industry  of  the  country  as  a  whole  seem-  to 
be  a  trifle  greater  than  the  rate  of  growth  of  the  -ample  industries  chosen. 
While  the  divergence  is  so  small  as  to  be  relatively  unimportant,  the  accu- 
racy can  presumably  be  improved  by  making  the  trend  conform  to  that 
indicated  by  the  Census  figures.  This  aim  has  been  accomplished  in  the 
following  manner: — 

The  respective  ratios  of  the  Census  figures  to  the  estimated  indices  have 
been  ascertained  for  1909,  1914,  and  1919,  and  these  ratio-  have  been  con- 
sidered the  determining  points  of  a  smooth  curve.  A  ratio  has  been  read 
from  this  smooth  curve  for  each  year  from  1909  to  1918.  The  estimated 
average1  indices  for  the  various  years  have  been  multiplied  by  the  corre- 
sponding ratios,  and  the  products  thus  obtained  are  believed  to  represent 
close  approximations  to  the  gross  values,  on  the  Census  basis,  of  manu- 
factured products  turned  out  for  the  various  years.  The  operations 
described  are  indicated  in  Table  5B. 

In  the  computation  of  the  average  index  of  output  mentioned  in  para- 
graph 3,  the  indicators  listed  in  Table  5A  were  used  with  the  weights  there 
stated.    The  general  source  of  the  information  is  cited  in  each  case. 

In  some  instances,  the  quantity  rather  than  the  value  of  the  product  is 
given  in  the  report  cited.  In  such  cases,  the  quantity  has  been  multiplied 
by  the  best  obtainable  price  figure  for  the  same  year,  and  the  product  thus 
derived  has  been  used  to  represent  the  fluctuations  in  the  average  value  of 
the  gross  output.  The  citations  in  Table  5A  -how  the  origin  of  both  price 
and  quantity  data  when  both  are  used.  Volume  and  page  references  have 
not  been  given  because  it  seems  unnecessary  to  burden  this  report  with  such 
a  mass  of  detail. 

Each  field  of  manufacture  has  been  weighted  in  proportion  to  the  gross 
"Value  of  Products"  as  shown  in  the  Abstract  of  the  Census  of  Manufac- 
tures for  1914.     This  general  weight   has  been  apportioned  among  the 


80 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

TABLE  5A 


THE  SOURCES  OF  INFORMATION,  THE  INDICATORS  USED,  AND  THE 
WEIGHTS  ASSIGNED  IN  COMPUTING  AN  AVERAGE  INDEX  OF  GROSS 
OUTPUT 


Source  of  Information 


Food  and  Kindred  Products. 

Yearbook  of  U.  S.  Department  of 
Agriculture. 

Chase,  Stephen,  Production  of  Meat 
in  U.  S.;  Food  Administration, 
Bureau  of  Animal  Industry  Re- 
ports; Yearbooks  of  Department 
of  Agriculture;  and  Statistical  Ab- 
stract of  U.  S. 

Statistical  Abstract  of  U.  S. 

Statistical  Abstract  of  U.  S. 

Statistical  Abstract  of  U.  S. 

Statistical  Abstract  of  U.  S. 

Statistical  Abstract  of  U.  S.  and 
Yearbook  of  Dept.  of  Agriculture. 

Textiles  and  their  Products. 
Statistical  Abstract  of  U.  S. 

Statistical  Abstract  of  U.  S. 

Statistical  Abstract  of  U.  S.  and  Bul- 
letin 200,  U.  S.  Bureau  of  Labor. 

Massachusetts  Statistics  of  Manu- 
factures. 


Massachusetts  Statistics  of  Manu- 
factures. 


Iron  and  Steel  and  their  Products. 
Statistical  Report  of  American  Iron 
&  Steel  Institute. 


Lumber  and  ns  Remanupactures. 

U.  S.  Census,  Statistical  Abstract  of 
U.  S.;  Bulletins  673  and  768  of 
Department  of  Agriculture. 

U.  S.  Census 

Massachusetts  Statistics  of  Manufac- 
tures. 


Weight 


G75 


1,293 

770 

193 

48 

1,639 

289 

444 
1,434 

649 

444 

444 
3,223 


1,184 
256 

160 


Indicator 


VALUE  OF 

Animal  Products. 


Meat  Produced. 

Sugar  Consumed. 

Coffee  Consumed. 

Crude  Chocolate  Imported. 

Wheat  Retained  for  Consumption. 

Butter  Receipts  at  five  large  cities. 

Unmanufactured  Silk  Imported. 
Cotton  Manufactures. 

Woolen  Manufactures. 


Men's  Clothing   Manufactured   in 
Massachusetts. 


Women's   Clothing   Manufactured 
in  Massachusetts. 


Pig  Iron  Consumed  plus  Crude 
Steel  and  Finished  Rolled  Prod- 
ucts produced. 


Lumber  Product  of  All  Mills- 
Lumber  not  Used  in  Building. 


Furniture  Produced  in  Massachu- 
setts. 


FACTORY  PRODUCTION* 


81 


TABLE  5A— Continued 


Source  of  Information 

Weight 

Indicator 

Leather  and  its  Finished  Products. 
Massachusetts  Statistics  of  Manu- 
factures. 

."u.-, 

VALUE  OF 
Boots  and  Shoes  Produced  in  Mass. 

Massachusetts  Statistics  of  Manu- 
factures. 

Massachusetts  Statistics  of  Manu- 
factures. 

298 
155 

Leather   Produced    in    Massachu- 
setts. 

Cut  Stock  and  Findings  Produced 
in  Mass. 

Massachusetts  Statistics  of  Manu- 
factures. 

77 

Bolting  Leather  Produced  in  Mas- 
sachusetts. 

Paper  and  Printing. 

Mass.  Statistics  of  Manufactures. 

99 

Paper  Boxes  Produced. 

Mass.  Statistics  of  Manufactures. 

15 

Envelopes  Produced. 

Mass.  Statistics  of  Manufactures. 

204 

Paper  and  Wood  Pulp. 

Mass.  Statistics  of  Manufactures. 

44 

Miscellaneous  Paper  Goods. 

Mass.  Statistics  of  Manufactures. 

525 

Newspaper  and  Periodical  Publish- 
ing. 

Annual   Report    of   South   Carolina 
Commissioner      of     Agriculture; 
Commerce  &  Industries. 

146 

Printing  &  Publishing. 

Bulletin  758,  Department  of  Agri- 
culture; U.  S.  Census  Bulletins  on 
Forest    Products;    Statistical    Ab- 
stract of  U.  S. 

423 

Pulp  W'ood  Consumption  of  U.  S. 

Liquors  and  Beverages. 
Statistical  Abstract  of  U.  S. 

23 

Domestic  Wine  Consumed. 

Statistical  Abstract  of  U.  S. 

509 

Fermented  Liquors  Produced. 

Statistical  Abstract  of  U.  S. 

124 

Whiskey  Produced. 

Statistical  Abstract  of  U.  S. 

116 

( Jommercial  Alcohol  Produced. 

Chemicals,  Stove,  Clay,  and  Glass. 
Statistical  Abstract  of  U.  S. 

1,778 

Mineral  Products  other  than  Coal 
and  Metals. 

Statistical  Abstract  of  U.  S. 

262 

Alcohol  Produced. 

Statistical  Abstract  of  U.  S. 

157 

Sulphuric  Acid  Produced. 

Statistical  Abstract  of  U.  S. 

261 

Cottonseed  Oil  and  Cake  Produced. 

Moody's   Analyses   of   Investments, 
1919. 

157 

Gross   Revenues,    Dupont   Pou  'ei 
Company. 

82  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

TABLE  5A— Continued 


Source  of  Information 

Weight 

Indicator 

Metals  Other  tfian  Iron. 
Statistical  Abstract  of  U.  S. 

1,417 

VALUE  OF 
Metallic  Products  other  than  Pig 
Iron. 

Tobacco  Manufactures. 

Statistical  Abstract  of  U.  S.  and  Year- 
book, Dept.  of  Agriculture. 

490 

Estimated  Value  of  Tobacco  Man- 
ufactures. 

Vehicles  for  Land  Transportation. 
National  Auto.   Chamber  of  Com- 
merce,— Facts    &    Figures    of   the 
Automobile    Industry    Manual    of 
Statistics,  1918. 

23S 

Gross  Earnings  American  Car  & 
Foundry  Company. 

Poor's   Manual  of  Industrials; 
Moody's  Analyses  of  Investments. 

10 

Gross  Sales,  Brill  &  Company. 

Railroad  Repair  Shops. 

Interstate   Commerce   Commission. 
Statistics  of  Railways. 

55.3 

Total  Maintenance  of  Railroad 
Equipment. 

Private  Shipbuilding. 

Mass.  Statistics  of  Manufactures. 

186 

Shipbuilding  in  Massachusetts. 

Paving  Materials. 

Geological      Survey — Mineral     Re- 
sources of  U.  S. 

36 

Asnhalt  Produced  in  the  U.  S. 

various  indicators  in  accordance  with  the  share  of  the  total  industry  that 
appears  to  be  best  typified  by  the  indicator  in  question.  Thus,  the  manu- 
facturing of  "Food  and  Kindred  Products"  is  given  a  weight  of  4,817 
because  products  of  that  type  in  the  United  States  in  1914  were  valued  at 
that  many  millions  of  dollars.  This  entire  weight  is  divided  among  seven 
indicators.  Although  the  seven  indicators  combined  manifestly  represent 
directly  but  a  fraction  of  the  food  manufacturing  field,  the  sum  of  their 
weights  is,  nevertheless,  made  to  total  4,817,  so  that  each  of  the  great 
divisions  of  manufacturing  may  be  represented  in  proportion  to  its  impor- 
tance in  making  up  the  average  index. 

There  is  ground  for  contending  that  the  weighting  should  be  based  upon 
the  "Value  Added  by  Manufacture"  rather  than  upon  the  "Value  of 
Products."  Since,  however,  the  available  indicators  nearly  all  represent 
the  gross  value  of  output,  and  since  an  index  of  gross  output  is  the  end  in 
view,  it  has  been  decided  to  use  this  gross  value  as  a  basis  of  weighting. 
Obviously,  no  two  investigators  would  choose  weights  according  to  exactly 
the  same  standard  but,  as  Bowley  demonstrates  in  his  Elements  of  Statistics, 
when  the  number  of  variables  to  be  averaged  is  rather  large,  the  exact  size 


FACTORY   PRODUCTION 


83 


of  the  weights  is  a  matter  of  secondary  importance.  It  seems  probable, 
therefore,  that  the  weights  chosen  answer  the  purpose  sufficiently  well. 

Evidently  many  of  the  criteria  used  measure  the  output  of  the  manu- 
facturing industry  only  indirectly.  For  example,  the  value  of  meat  pro- 
duced is  used  to  measure  the  magnitude  of  the  slaughtering  and  meat 
packing  industry;  the  amount  of  coffee  imported  indicates  the  extent  of 
coffee  roasting  and  grinding;  and  the  imports  of  raw  silks  give  an  index 
of  the  activity  of  the  silk  factories.  It  is  doubtful  if  direct  records  of  meal 
packing,  coffee  grinding,  and  silk  weaving  would  give  much  more  repre- 
sentative indices  of  the  value  of  the  output.  Their  superiority  would  pre- 
sumably be  but  slight  at  best. 

The  final  steps  in  the  computation  of  the  index  of  gross  output  for  the 
Continental  United  States  are  shown  in  Table  5B. 

TABLE  5B 

THE  ESTIMATED  GROSS  VALUE  OF  THE  GOODS  TURNED  OUT  BY 
FACTORIES  COVERED  BY  THE  PRINCIPAL  REPORT  OF  THE  CENSUS 
OF  1914 

For  the  Continental  United  States 


A 

B 

C 

D 

E 

F 

Date 

Indices  of 
annual  output 
computed 
from  forty- 
four  indica- 
tors d 

Value  of  gross 
output  as 
shown  by 
the  census 
(Millions) 

Ratio  of 

census  output 

to  estimated 

index  of 

output 

C  4-  B 

Estimated 

ratio  of 

actual  output 

to  indices  of 

output 
(Hundreds) 

Estimated 
value  of  gross 

output 
(Millions) 

B  XE 

1909 .... 

1910 

1911 

1912 

1913.  .  .. 

1914 

1915.  .  .. 
1916. ... 
1917. ... 

1918.  .  .. 

1919.  .  .. 

100.0 
105 . 0 
102.5 
115.2 
123.2 

115.0 
133.7 

202.8 
261.7 
284.2 
278.1 

$20,6726 

24,2466 

62,588 « 

206,721 

210,830 
225,100 

2067  c 
2072  a 
2078  a 

2088  a 
2095  a 

2108  c 
2126" 
2149a 
2181a 
22 1 7  a 
2251c 

§20,672  6 
21,770 
21,300 
21.050 
25,810 

24,246  6 

28,430 

43,580 

57,080 

63,000 

62.5XN' 

a  Interpolated  along  a  smooth  curve. 

6  Abstract  of  United  Stales  Census  of  Manufactures,  1914,  p.  16. 

c  See  Column  D. 

d  For  list  of  indicators,  see  Table  5A. 

e  Preliminary  bulletin  of  Census  of  Manufactures  for  1919,  May  24,  1921. 

The  representative  character  of  the  average  index  computed  from  the 
forty-four  indicators  is  reasonably  well  established  by  the  entries  in  Col- 
umn D,  which  show  that  the  ratios  of  the  Census  totals  to  the  index  are 
nearly  the  same  in  1909  and  1914  and  not  greatly  different  in  1919.     If 


84  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTIOK 

they  were  fairly  reliable  criteria  for  that  ten-year  period,  there  is  every 
reason  to  suppose?  that  they  are  equally  dependable  for  the  intervening 
years.  It  seems  safe  to  assume,  therefore,  that  the  figures  presented  in 
Column  F  show  rather  accurately  for  each  year  the  gross  value  of  the  out- 
put of  that  part  of  the  manufacturing  industry  of  the  United  States  covered 
by  the  quinquennial  Census. 

§  5c.  The  Division  of  the  Net  Value  Product  in  the  Census  Years 

Since,  for  reasons  previously  stated,  the  size  of  the  gross  output  does 
not  measure  accurately  the  productiveness  of  the  manufacturing  industry 
itself,  this  last  quantity  must  be  arrived  at  by  ascertaining  the  increase  in 
value  brought  about  by  the  operations  of  manufacture.  This  increase  in 
value  is  eventually  divided  among  the  entrepreneurs,  employees,  and 
outside  investors  in  the  industry. 

From  the  Census,  it  seems  possible  to  estimate,  with  a  moderate  degree 
of  accuracy,  the  shares  of  each  of  the  classes  just  mentioned.  The  share 
of  the  entrepreneurs  is  assumed  to  equal  the  value  of  the  gross  product  less 
all  expenses  and  an  allowance  for  depreciation.  The  Census  Bureau  has 
made  no  estimates  of  the  depreciation  occurring  in  the  factories  of  the 
country.  Some  writers  contend  that  a  depreciation  allowance  has  no 
basis  of  fact;  in  other  words,  that  it  is  a  mere  bookkeeping  device  used  to 
conceal  accumulated  profits.  According  to  this  point  of  view,  manufactur- 
ing plants  do  not  depreciate  but,  as  a  rule,  continually  improve  in  quality, 
owing  to  the  replacement  of  obsolete  machinery  by  modern  equipment, 
and  hence,  not  only  should  there  be  no  depreciation  account,  but  large  sums 
that  have  been  charged  to  repairs  ought  to  have  been  carried  to  surplus. 
Opponents  of  this  view  may  admit  the  physical  improvement  of  the  plant 
but  nevertheless  believe  that  depreciation  accounts  are  necessary  to  cover 
the  large  losses  which  occur  through  bad  investments. 

A  little  consideration  will  force  one  to  the  conclusion  that  this  issue 
resolves  itself  into  the  question  as  to  whether  surplus  accounts  as  reported 
are  too  large  or  too  small.  Since  manufacturing  concerns  usually  make 
depreciation  allowances  in  their  accounts  before  computing  their  annual 
surpluses,  and  since  the  surpluses  arrived  at  by  their  accounting  systems 
seem,  on  the  average,  to  be  correctly  reported,1  it  follows  that  correspond- 
ing depreciation  allowances  should  be  applied  to  the  Census  figures  in 
order  to  obtain  the  correct  amounts  for  profits. 

In  order  to  obtain  a  reasonable  basis  for  estimating  depreciation,  the 
allowances  for  this  purpose  made  by  a  large  number  of  manufacturing 
corporations  (as  reported  in  Moody's  Manual)  were  summated  for  1914, 
and  the  sums  were  compared  with  the  aggregate  total  nominal  investment 

1  For  discussion  of  this  point  see  §  lg  of  this  volume. 


FACTORY  PRODUCTION 


85 


in  the  selected  concerns.     The  depreciation  allowance  amounted  in  1914  to 
2.927  per  cent.     A  separate  estimate  for  1909  was  not  calculated  for  the 

TABLE  5C 

THE  APPROXIMATE  DISTRIBUTION  OF  THE  VALUE  PRODUCT  OF  THAT 
PART  OF  THE  MANUFACTURING  INDUSTRY  INCLUDED  BY  THE 
CENSUS  BUREAU  IN  THE  TOTALS  FOR  190'.)  AND  1914 


Millions  of  dollars 

Item 

Census  of 

1909 

1914 

Value  of  Gross  Output 

$20,672" 

$      939 « 

3,427  a 

52  ^ 

12,143a 

1,946  a 

539  c 

$24,246  & 

$  1,288  b 
4,078^ 

Expenses: 
Services: 

Salaries 

Wages 

Interest  Paid  to  Banks 

47/, 

Materials 

14,368* 

2,344/ 

Miscellaneous 

Depreciation 

667  d 

Share  of  Entrepreneurs  and  Interest  on 
Funded  Debt 

19,046 
$  1,626 

22,792 
$  1,454 

Distribution  of  Value  of  Product: 
Share  of  Employees: 

Wages  and  Salaries 

$4,366* 

44  a 

$4,410 

1,626 
107  9 

106  i 

$5,366  * 

Payments  to  Workers  for  Contract 
Work  e 

50  b 

Total  Share  of  Employees. 

$5,416 

1,454 

140'' 

Share  of  Entrepreneurs  and  Other  In- 
vestors: 

Gross  Profits  and  Bond  Interest 

Rent  of  Factories 

Other  Rent  and  Royalties 

141  > 

Total 

1,839 
$  6,249 

1,735 

Total  Value  Product  of  Manufacturing 
Industry 

$  7,151 

a  Abstract  of  the  U.  S.  Census  for  1910,  p.  438. 

b  Abstract  of  the  U.  S.  Census  of  Manufactures,  1914,  pp.  516-519. 

e  2.927  per  cent  of  the  capital  of  $18,428,270,000. 

d  2.927  per  cent  of  the  capital  of  822,790,979,937. 

e  One-fourth  of  amount  paid  for  contract  work. 

/Includes  $1,563,000,000  estimated  "Other  Miscellaneous"  expenses  not  recorded 
by  the  Census  of  1914.  Missing  item  assumed  to  constitute  same  ratio  to  other  ex- 
penses as  in  1909,  namely  7.03  per  cent;  total  expenses  reported  by  1914  Census  equal 
$20,515,000,000. 

a  U.  S.  Census  of  Manufactures  for  1910,  Vol.  VIII.  pp.  518   Y20. 

''  Estimated  from  a  study  of  the  reports  (recorded  in  Moody's  Manual)  of  sixty-one 
representat  ive  manufacturing  corporations. 

*  Arbitrarily  assumed  thai  other  rents  and  royalties  paid  to  private  parties  are  just 
as  large  as  the  reported  rent  of  factories. 


86  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

reason  that  it  was  felt  that,  at  that  date,  the  custom  of  reporting  depreci- 
ation in  the  published  accounts  had  not  developed  sufficiently  to  make  the 
data  reliable.  For  this  reason,  the  same  percentage  was  used  for  1909  as 
for  1914,  and  in  each  case,  2.927  per  cent  of  the  total  capitalization,  as 
reported  by  the  Census,  has  been  deducted  from  gross  receipts  as  a  depre- 
ciation allowance. 

It  is  evident  that  the  entries  in  Table  5C  are  not  exact  but  are  subject 
to  a  considerable  degree  of  error.  The  depreciation  allowance,  as  has 
already  been  explained,  is  only  an  approximation.  The  assumption  that 
25  per  cent  of  the  payments  for  contract  work  are  virtually  wages  has  been 
made  after  going  through  the  list  of  industries  given  in  the  1914  Census 
and  selecting  those  like  the  clothing  industry  in  which  the  payments  are 
presumably  made  for  work  done  at  home  by  members  of  the  working  class. 
Such  a  rough  method  of  estimate  is  perhaps  amply  good  when  one  con- 
siders the  relatively  small  size  of  the  items  involved.  Nevertheless,  an 
appreciable  amount  of  error  is  likely  to  creep  in  at  this  point. 

The  items  for  rent  and  royalties  are  included  in  the  items  making  up 
the  value  product  ascribed  to  the  industry  on  the  assumption  that  these 
payments  are  made  to  property  owners  not  represented  in  any  other  sec- 
tion of  this  estimate.  It  has  been  assumed,  for  example,  that  few  of  the 
buildings  leased  for  factory  purposes  are  owned  by  other  manufacturing 
concerns.  Concrete  evidence  along  this  line  is  lacking;  hence,  guesses  are 
substituted.  The  size  of  the  item  entitled  "Other  Rents  and  Royalties" 
in  1914,  is  also  unknown  and  the  figure  inserted  may  be  far  from  the  truth. 
The  doubtful  items  just  discussed  are  not  large  enough  to  make  any  con- 
siderable relative  change  in  the  product,  even  if  the  errors  in  these  minor 
items  are  a  maximum  and  all  in  the  same  direction.  Such  errors  might, 
however,  vitiate  to  some  extent  the  accuracy  of  the  figures  purporting  to 
show  the  divisions  of  the  net  product  between  employees  and  other  claim- 
ants. As  a  matter  of  fact,  the  errors  probably  cancel  each  other  to  some 
extent;  hence,  it  is  hoped  that,  for  the  Census  years,  the  apportionment 
of  the  value  product  between  employees  and  the  other  claimants  thereto 
is  exact  enough  to  answer  the  needs  of  most  students  of  the  subject.  Cen- 
sus figures  exist,  however,  only  for  three  years  in  the  period.  What  changes 
took  place  between  those  dates? 

§  5d.  Mode  of  Estimating  the  Net  Value  Product  for  Intercensal  Years 

Data  upon  which  one  can  base  estimates  as  to  the  changes  occurring 
from  year  to  year  in  the  apportionment  of  the  value  product  between  the 
different  classes  of  claimants  are  by  no  means  abundant.  Iowa  issues 
statistics  concerning  its  manufacturing  industries,  but  only  biennially. 
Since  that  State  is  devoted  primarily  to  agriculture  and  only  incidentally 


FACTORY  PRODUCTION  87 

to  manufacturing,  and  since  half  the  years  are  missing,  its  reports  have 
not  been  utilized.  South  Carolina  and  Pennsylvania  publish  annual 
reports.  In  both  of  these  States,  a  considerable  share  of  the  smaller  estab- 
lishments apparently  did  not  report  hi  the  earlier  years.  Nevertheless, 
the  data  from  these  States  are  valuable,  since  South  Carolina  well  repre- 
sents the  extensive  textile  business  of  the  South,  while  Pennsylvania  stands 
for  the  iron  and  steel  industry,  the  products  of  which  played  such  an 
important  part  in  the  recent  war.  It  is  Massachusetts,  however,  which 
furnishes  the  most  complete  and  probably  the  most  accurate  statistics 
of  manufactures  compiled  by  any  State  in  the  Union.  Unfortunately, 
its  manufactures,  while  extremely  varied,  consist  to  a  disproportionate 
degree  of  shoes  and  textiles,  the  latter  being  already  represented  by  the 
South  Carolina  data.  In  order,  therefore,  to  secure  the  maximum  advan- 
tage from  the  existence  of  such  a  useful  body  of  data,  it  was  deemed  best 
to  re-weight  the  Massachusetts  figures  in  a  manner  which  makes  the  dif- 
ferent industries  for  that  State  have  the  same  relative  rank  as  the  like  indus- 
tries in  the  nation  as  a  whole.     The  actual  process  used  is  as  follows: — 

Those  Massachusetts  industries  have  been  chosen  which  best  repre- 
sent the  given  field  of  production.  All  the  items  in  the  data  for  the  speci- 
fied Massachusetts  industry  have  been  multiplied  by  the  ratio  of  the  1914 
value  of  the  output  in  the  United  States  to  the  value  of  the  output  in  the 
chosen  Massachusetts  industry  in  the  same  year.  The  sums  of  the  result- 
ing products  are  thus  made  comparable  in  size  to  the  corresponding  aggre- 
gates for  the  country  as  a  whole.  The  totals  obtained  in  this  way  from  the 
Massachusetts  data  show  the  relative  changes  that  would  have  occurred 
from  year  to  year  in  the  gross  value  of  output,  in  the  stock  of  materials 
used,  and  in  the  amount  of  wages  paid  during  the  year,  if  each  of  these 
items  in  each  of  the  great  fields  of  the  manufacturing  industry  in  the 
United  States  as  a  whole  had  changed  at  the  same  rate  as  did  the  corre- 
sponding fields  in  Massachusetts. 

Owing  to  the  less  detailed  nature  of  the  information  from  Pennsylvania 
and  South  Carolina,  it  was  not  deemed  worth  while  to  re-weight  the  figures 
for  those  states  in  the  same  manner.  For  the  reasons  just  stated,  in  those 
instances  in  which  the  figures  for  the  three  States  have  been  combined,  th<> 
Massachusetts  figures  have  been  weighted  somewhat  more  heavily  thai 
the  relative  size  of  its  manufacturing  industries  would  apparently  warrant. 
In  this  manner,  indices  and  ratios  have  been  derived  which  have  been  used 
as  a  basis  for  estimating  figures  for  intercensal  years. 

§  5e.  The  Share  of  the  Employees 

In  attempting  to  estimate  the  amount  paid  to  employees  in  the  form  of 
salaries  and  wages  the  assumption  has  been  made  that  variations  in  the 


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FACTORY  PRODUCTION 


S'.l 


ratio  of  wage  payments  to  gross  value  of  output  are  satisfactory  as  criteria 
to  be  used  in  interpolation.  Only  preliminary  figures  for  the  1919  Census 
are  as  yet  available.  When  this  Census  is  complete,  it  will  be  possible  to 
secure  a  slightly  higher  degree  of  accuracy  in  all  estimates  after  1914,  but 
it  is  believed  that  the  present  indices  for  these  last  few  years  are  approxi- 
mately correct.    The  procedure  is  recorded  in  Table  5D. 

Work  done  at  home  under  the  contract  system,  a  procedure  frequently 
followed  in  the  clothing  industry  for  example,  is  often  akin  to  piece  work 
in  a  factory.  The  contractors  in  such  instances,  furnish  no  property  of 
moment  and  are  virtually  wage  earners.  As  previously  stated,  the  basic 
estimates  as  to  the  extent  of  such  work  are  very  crude.  Table  5E  is  con- 
structed on  the  principle  that  contract  work  has  formed  a  very  slowly 
but  steadily  varying  ratio  to  payments  for  wages  and  salaries.  Since  the 
amounts  dealt  with  are  relatively  very  small,  errors  in  the  results  are  of 
little  consequence. 

TABLE  5E 

AN  ESTIMATE  OF  THE  TOTAL  SHARE  OF  THE  EMPLOYEES  IX  THE  NET 
VALUE  PRODUCT  OF  THAT  PART  OF  THE  MANUFACTURING  FIELD 
COVERED  BY  THE  CENSUS  OF  1914 


A 

B 

C 

D 

E 

Year 

Estimated 
total  of  wages 

and  salaries" 
(Millions) 

Estimated 

payments  for 

labor  done 

under  contract 

(Millions) 

(One-fourth 

of  census 

items) 

Estimated  ratio 

of  all  payments 

for  labor  to  sum 

of  wages  and 

salaries 

B  +  C 

B 

Estimated  sum 

of  all  payments 

for  labor 

(Millions) 

B  X  D 

1909 

$  4,366 
4,790 
4,805 
5,310 
5,890 

5,306 

5,892 

8,442 

10,530 

12,410 

13,273 

$44.76 
49.7  c 

1.0102d 

1.0100c 
1.00!  17  < 
1.0096c 
1.0095c 

1.0093  d 

1.0090c 

1.0089< 
1  0086 ' 
1 ,0085« 
I. 0083 < 

$  4,410 

1910 

1911 

1,838 
4,852 

1912.  . 

5,361 

1913.  . 

5,946 

1914 

5,416 

L915 

5,945 

1916.  . 

8,517 

1917.              

10.621 

1919                

12,515 
13,383 

a  See  Table  51). 

b  U.  S.  Census  of  Manufactures,  1910,  Vol.  VIII,  pp.  518-519. 

c  Abstract  of  the  Census  of  Manufactures,  1914,  pp.  516-517. 

<l  Computed. 

c  Interpolated  along  a  curve. 


90 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


A  complete  estimate  would  include  in  Table  5E  payments  made  to 
employees  as  pensions  or  as  damages  for  injuries  suffered.  However,  no 
information  is  at  hand  concerning  these  amounts,  and,  since  they  are  not 
large  enough  to  be  of  serious  moment,  no  adjustments  have  been  made  for 
these  missing  quantities. 

In  order  to  estimate  the  average  amount  of  money  received  by  an  em- 
ployee as  wages  or  salaries  during  each  year,  it  is  necessary  first  to  calcu- 
late the  number  of  employees  attached  to  the  industry.  The  estimates  of 
this  number  have  been  made  in  accordance  with  the  principles  laid  down 
in  Sec.  2d.    Tables  5F  and  5G  set  forth  the  conclusions  derived. 

TABLE    5F 


THE  ESTIMATED  NUMBER  OF  EMPLOYEES  ENGAGED  IN  THAT  PART 
OF  THE  MANUFACTURING  FIELD  INCLUDED  IN  THE  PRINCIPAL 
TABLES  OF  THE  1914  CENSUS 


A 

B 

C 

D 

E 

F 

G 

Calen- 
dar 

Number  em- 
ployed as 
shown  by 

Index  of 

number 

employed  in 

factories  of 

Ratio  of 
B  toC 

Estimated 
number  ac- 
tually at 
work 

Estimated 

fract  ion  of 

employees 

attached  tc 

industry 

Estimated 

number  of 

employees 

attached  to 

year 

(Thousands) 

CXD 

industry 

census 

various 
states  b 

actually 
at  work  e 

(Thousands) 
E  -4-  F 

1909 .  .  . 

7,405,313  a 

969 

7,642  c 

7,405 

.958 

7,730 

1910.  .  . 

955 

7,717d 

7,370 

.944 

7,810 

1911.  .  . 

964 

7,780  a- 

7,500 

.941 

7,970 

1912.  .  . 

1,009 

7,859 d 

7,930 

.968 

8,190 

1913.  .  . 

1,007 

7,944  d 

8,000 

.949 

8,430 

1914.  .  . 

8,000,554  a 

1,000 

8,001 e 

8,001 

.910 

8,790 

1915.  .  . 

982 

8,139  d 

7,993 

.878 

9,102 

1916.  .  . 

1,140 

8,296 d 

9,457 

.969 

9,757 

1917.  .  . 

1,203 

8,429  a" 

10,140 

.975 

10,395 

1918.  .  . 

1,220 

8,590-/ 

10,480 

.  961 

10,905 

1919.  .  . 

10,374,000/ 

1,188 

8,732  c 

10,374 

.  934 

11,017 

a  Abstract  of  Census  of  Manufactures,  1914,  p.  428. 

b  Estimates  for  Massachusetts,  South  Carolina,  New  York,  Pennsylvania,  and 
Wisconsin  for  years  after  1914.  For  years  1909  to  1912,  only  Massachusetts  and  South 
Carolina  furnished  reports. 

c  Computed  by  division. 

d  Interpolated  along  a  smooth  curve. 

«  See  Section  2d  for  method  of  estimate. 

/  Preliminary  estimate  by  Mr.  E.  F.  Hartley,  Statistician  for  the  U.  S.  Census  of 
Manufactures. 

From  Table  5G,  it  appears  that  the  economic  welfare  of  the  employees 
in  this  line  of  production  has  improved  quite  decidedly  since  1914.  It  is  also 
a  fact  of  interest  that  the  average  number  of  employees  increased  rather 
rapidly  between  1915  and  1918. 


FACTORY  PRODUCTION 


91 


TABLE  5G 


THE  ESTIMATED  AVERAGE   COMPENSATION    RECEIVED   BY   THE   EM 
PLOYEES   ATTACHED   TO   THAT   PART   OF    THE    MANUFACTURING 
FIELD  INCLUDED  IN  THE  PRINCIPAL  TABLES  OF  THE  1914  CENSUS 


Calen- 
dar 
year 


1909 
1910 
1911 
1912 

1913 
1914 
1915 
1916 

1917 
1918 


B 


Total  compen- 
sation for 

labor" 
(Millions) 


5  4,410 
4,838 
l.s.YJ 
5,361 

5,946 
5,416 
5,945 
8,517 

10,621 
12,515 


Estimated 

number  of 
employees  at- 
tached to 
industry  b 

(Thousands) 


7,730 

7.S10 
7.970 
8,190 

8,430 
S.790 
9,102 
9,757 

10,395 
10,905 


D 


Average  annual 
compensation 

per  employee 
B  -f-  C 


>  571 
(320 
609 

655 

71 15 
616 

(353 
873 

1,022 

1,148 


E 


Index  of  prices 
of  goods  con- 
sumed by 
manual  and 
clerical 
workers  c 


Purchasing 
I  lower  of  aver- 
age annual 
compensation 
at  prices  of  1913 
D  ~  E 


.955 

978 

.984 

.994 

1.00 
1.01 
1.03 
1.10 

1.29 

1   58 


$597 
634 

619 
659 

705 
610 
634 
794 

792 
726 


a  See  Table  5E. 
b  See  Table  5F. 
e  See  Table  2C. 


§  5f.  The  Share  of  the  Entrepreneurs  and  Other  Property  Owners 

The  first  item  dealt  with  in  the  share  of  the  propertied  classes  is  the  rela- 
tively unimportant  one  of  rents  and  royalties  paid  to  private  parties  for 
leased  property.  The  assumption  that  the  net  amounts  were  two-thirds  ' 
of  the  totals  reported  by  the  Census  as  being  paid  for  the  rent  of  factories 
gives  an  estimate  for  1909  of  $71,050,000,  and  for  1914  of  893,800,000.  It 
seems  reasonable  that  rents  and  royalties  should  vary  in  proportion  to 
the  number  of  employees  and  the  general  rent  level.  Xo  figures  for  business 
rents  are  available;  hence,  it  has  been  necessary  to  fall  back  on  the  index 
of  residence  rents  compiled  by  the  United  States  Bureau  of  Labor  Statistics. 
Since  it  was  a  period  of  nearly  stationary  prices,  it  is  assumed  that  rents 
remained  unchanged  from  1909  to  1913. 

Table  5H  shows  the  rough  estimates  of  rent  paid  arrived  at  by  the  appli- 
cation of  these  decidedly  tenuous  assumptions. 

It  is  much  more  difficult  to  estimate  correctly  the  share  of  the  net  value 
product  going  to  the  entrepreneurs  and  investors  than  it  is  to  find  the 
amount  going  to  labor.  Table  5C  indicates  thai  it'  we  include  business 
savings  as  part  of  the  income  of  the  entrepreneurs  that  they  and  the  bond- 

1  Assumed  that  one-third  of  the  gross  rent  goes  to  pay  for  taxes,  repairs,  and  maintenai 


92 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  5H 


A  ROUGH  ESTIMATE  OF  THE  PAYMENTS  MADE  TO  PRIVATE  INDIVID- 
UALS IN  THE  FORM  OF  RENTS  AND  ROYALTIES  BY  THE  MANUFAC- 
TURING  INDUSTRIES   COVERED   BY   THE   MAIN   REPORT  OF  THE 

CENSUS  OF  1914 


(For  the  Continental  United  States) 


A 

B 

C 

D 

E 

F 

G 

Estimated 

Rent,  paid  to 

Thousands 

total  rents 

individuals 

of 

Index  of 

Composite 

Ratio  of 
B  toE 

and  royal- 

Year 

for  the  use 

employees 

residence 

index 

ties  paid 

of  factories 

attached  to 

rents 

C  X  D 

(Millions) 

(Thousands) 

industry  c 

E  X  F 
1,000 

1909 

$71,050« 

7,730 

l.OOrf 

7,730 

9.18/ 

$  71 

1910 

7,810 

1 .  00  d 

7,810 

9.48(7 

74 

1911 

7,970 

1.00'/ 

7,970 

9.79(7 

78 

1912 

8,190 

1 .  00  d 

8,190 

9.89<7 

81 

1913 

8,430 

1 .  00  ■ 

8,430 

10.44(7 

88 

1914 

93,8006 

8,790 

1.00<= 

8,790 

10.69/ 

94 

1915 

9,102 

l.Ole 

9,193 

10.66(7 

98 

1916 

9,757 

1.02« 

9,952 

11.05o 

110 

1917 

10,395 

l.Ole 

10,499 

11.33ff 

119 

1918 

10,905 

1 .  05  • 

11,450 

11.969 

137  . 

a  U.  S.  Census  of  Manufactures  for  1910,  Vol.  VIII,  p.  129;  estimated  that  two-thirds 
of  rent  was  paid  to  individuals. 

b  Abstract  of  Census  of  Manufactures  of  V.  S.  in  1914,  p.  517;  estimated  that  two- 
thirds  of  rent  was  paid  to  individuals. 

c  See  Table  5F. 

d  No  data;  therefore  assumed. 

e  U.  S.  Bureau  of  Labor  Statistics,  Monthly  Labor  Review,  various  numbers  in  1920- 
1921. 

/  Computed  by  division. 

a  Interpolated  along  a  straight  line. 


holders  together  received  $1,626,000,000  in  1909  and  $1,454,000,000,  in 
1914.  In  1918,  the  first  year  in  which  the  Income  Tax  Bureau  presents  for 
manufacturing  corporations  figures  answering  our  needs,  these  corporations 
showed,  after  paying  taxes,  net  earnings  of  $2,422,074,926.  If  we  estimate 
the  interest  on  the  funded  debt  as  being  80  per  cent  of  all  interest  paid,  it 
constitutes  an  addition  of  about  $430,500,000,  making  a  total  of  approx- 
imately $2,852,575,000.'  By  means  of  a  smooth  curve  based  upon  the 
fractions  for  1904,  1909,  and  1914,  it  is  estimated  that,  in  1918,  corpora- 
tions produced  84.7  per  cent  of  all  value  added  by  the  factories  in  this  field. 
If  we  divide  by  0.847,  we  arrive  at  a  figure  of  about  $3,366,000,000,  as 
representing  the  share  going  in  1918  to  both  private  and  corporate  entre- 

i  U.  S.  Bureau  of  Internal  Revenue  Statistics  of  Income,  1918,  p.  16, 


FACTORY   PRODUCTION 


93 


preneurs  and  to  holders  of  the  funded  debt.  The  gross  output  of  the  fac- 
tories, in  this  year,  has  been  estimated  a1  ^il.olo.OOO.OOO.1  If  this  figure 
is  correct,  the  ratio  of  the  share  of  the  classes  mentioned  to  the  gross  value 
of  output  is  about  0.0551. 


TABLE  51 


RETURNS  TO  ENTREPRENEURS  AND  HOLDERS  OF  THE  FUNDED  DEBT 
IN  THAT  PART  OF  THE  MANUFACTURING  FIELD  COVERED  BY  THE 
MAIN  REPORT  OF  THE  CENSUS  OF  1914  INTERPOLATED  UPON  THE 
BASIS  OF  THE  AVERAGE  NET  EARNINGS  OF  SIXTY-SIX  TYPICAL 
MANUFACTURING  CORPORATIONS 


(In  the  Continental  United  States) 


A 

B 

C 

D 

E 

Year 

Returns  to 
ent  repreneurs 

and  In  (Mors 

of  the 
funded  debt 

(Millions) 

Index  repre- 
senting net 
earnings  plus 
bond  interest 
of  66  typical 
corporations  b 

Ratio  of 

B  to  (' 

(Millions) 

First  approxima- 
tion to  the  share 
of  entrepreneurs 
and  private  cred- 
itors in  the  value 

product 
(Millions) 

C  X  D 

1909 

1910 

$1,626° 

1,454  a 

3,366 e 

100.0 

118.7 

90.7 

117.4 

132.5 

106.4 
131.2 
253 . 9 

304.9 
228.6 

16.26c 
15.40-/ 
14. 70^ 
14.16d 
13.80d 

13.67c 
13.79a1 
14.00  a- 
14.43  d 
14.72* 

81.626 
1,828 
1,333 
1,663 

1,829 

1,454 
1,810 
3,555 
1,399 
3,366 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

a  See  Table  5C. 

b  Computed  from  data  in  Poor's  and  Moody's  Manuals  of  Statistics.  Corporations 
were  classified  according  to  size  and  both  totals  and  a  set  of  indices  were  obtained  for 
each  group.  The  index  series  here  given  is  composed  of  the  respective  medians  for 
the  specified  years  of  the  indices  for  the  various  groups. 

c  Computed  by  division. 

d  Interpolated  along  a  smooth  curve. 

e  For  origin  of  this  figure,  see  text. 

The  difference  between  the  items  in  the  second  and  third  columns  of 
Table  5J  casts  suspicion  upon  the  accuracy  of  the  Census  figures.  Why 
should  a  group  of  typical  corporations  show  from  1 1  to  13  per  cent  of  their 
gross  output  going  to  profits  when  the  Census  data  for  the  same  years 
indicate  only  (i  to  8  per  cent  for  the  same?  Most  of  the  discrepancy  pre- 
sumably arises  from  the  fact  that  the  gross  output  as  reported  by  the  ( )en- 
sus  contains  much  more  duplication  than  does  that  reported  by  corpora- 
tions.   The  Census  is  taken  factory  by  factory,  each  plant  stat  ing  the  value 

'  Sec  Table  5B. 


94 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  5J 


RETURNS  TO  ENTREPRENEURS  AND  HOLDERS  OF  THE  FUNDED  DEBT 
IN  THAT  PART  OF  THE  MANUFACTURING  FIELD  COVERED  BY  THE 
TOTALS  FOR  THE  CENSUS  OF  1914  INTERPOLATED  UPON  THE  BASIS 
OF  THE  AVERAGE  RATIO  OF  EARNINGS"  TO  GROSS  OUTPUT  IN  THE 
CASE  OF  31  TYPICAL  CORPORATIONS 


A 

B 

C 

D 

E 

F 

G 

Ratio  of  share  of  entre- 

Estimated 

Second  ap- 

preneurs and  bond- 

ratio of 

proximation 

holders  to  gross  value 

share  of  en- 

to the  share 

Year 

of  output 

Ratio  of 

trepreneurs 
and  bond- 

Estimated 
gross  output/ 

of  entrepre- 
neurs and 

BtoC 

According 

As  shown 

holders  to 

(Millions) 

holders  of 

to  U.  S. 

by  cor- 

gross output 

funded  debt 

Government 

porate 

C  XD 

(Millions) 

figures 

reports  c 

E  X  F 

1909 

.0787& 

.133 

.592d 

.0787 

$20,672 

$1,626 

1910 

.145 

.589" 

.0854 

21,770 

1,859 

1911 

.121 

.585e 

.0708 

21,300 

1,507 

1912 

.135 

.  567  e 

.0765 

24,050 

1,839 

1913 

.143 

.557  c 

.0797 

25,810 

2,056 

1914 

.0600^ 

.109 

.550d 

.0600 

24,246 

1,454 

1915 

.124 

.527  * 

.0654 

28,430 

1,860 

1916 

.182 

.503' 

.0916 

43,580 

3,994 

1917 

.162 

.480<- 

.0778 

57,080 

4,444 

1918 

.0534ff 

.117 

.  456  d 

.0534 

63,000 

3,366 

a  Earnings  equal  total  of  bond  interest,  dividends,  and  amount  carried  to  surplus. 

b  See  Table  5C  for  figures  from  which  ratios  are  derived. 

e  The  ratio  was  computed  from  reports  in  Poor's  and  Moody's  Manuals  for  each 
corporation  for  each  year.  The  median  of  the  ratios  for  each  year  was  ascertained 
and  is  here  recorded. 

d  Computed  by  division. 

e  Interpolated  along  a  smooth  curve. 

/  See  Table  5B. 

a  For  derivation,  see  text. 


of  its  output.  The  large  corporations  of  today,  are  highly  integrated. 
Thus,  a  steel  company,  in  reporting  its  gross  sales,  does  not  duplicate  the 
value  of  the  gross  outputs  of  the  iron  mines,  blast  furnaces,  etc.,  operated 
as  separate  units.  But,  though  the  values  of  outputs  of  subsidiary  plants 
are  not  combined  to  give  a  grand  total  of  output,  the  net  earnings  of  all 
the  parts  of  a  corporation  may  be  totaled  to  arrive  at  the  reported  net 
earnings.  The  following  example  may  serve  to  illustrate  the  situation. 
Holding  Company  A  operates  a  series  of  four  factories.  Plant  2  uses  the 
output  of  Plant  1;  Plant  3  takes  the  output  of  Plant  2;  and  Plant  4  is  the 
only  one  selling  any  final  product  to  outsiders. 

From  the  following  table,  a  computation  by  the  Census  method  would 
show  the  ratio  of  profit  to  gross  value  of  output  to  be  ^V  or  .105. 


FACTORY  PRODUCTION 


95 


Plant 

Operating 

expenses 

Gross  value 
of  output 

Profits 

1           

9 
11 
14 

17 

10 
12 
16 
19 

1 

2 

1 

:i         

2 

4                

2 

Total 

51 

57 

6 

In  the  report  of  Corporation  A,  however,  the  gross  sales  would  be  re- 
ported as  only  the  amount  sold  to  outsiders  from  the  finishing  plant,  No. 
4,  or  19;  while  the  net  profit  would  still  be  reckoned  as  6.  This  would 
give  a  ratio  of  ^  or  .316,  approximately  three  times  that  indicated  by  the 
Census  method. 

There  is  no  way  of  knowing  whether  the  discrepancy  between  the 
ratios  derived  from  the  Census  and  from  corporation  reports  does  or  does 
not  arise  wholly  from  this  difference  in  accounting,  but  it  is  not  improbable 
that  this  is  the  chief  cause  for  the  dissimilarity  of  the  ratios. 

In  Tables  51  and  5J,  there  are  derived  two  distinct  estimates  of  the  share 
in  the  income  from  manufacturing  going  to  the  entrepreneurs  and  holders 
of  the  funded  debt.  An  average  of  these  two  estimates,  equal  weight  being 
given  to  each,  appears  in  Column  B  of  Table  5K.  This  table  also  shows 
the  distribution  of  the  share  of  the  entrepreneurs  and  holders  of  the  funded 
debt,  divided  into  three  parts,  these  parts  being  estimated  from  the  annual 
reports  of  forty-six  typical  corporations. 

The  evidence  in  Table  5K  indicates  that,  as  might  be  expected,  the 
funded  debt  has  consumed  a  relatively  fixed  quantity  of  the  net  earnings 
while  distributed  profits  and  savings  have  varied  greatly.  A  better  pic- 
ture of  the  significant  facts  is  shown  in  Table  5L  in  which  the  nominal 
amounts  have  been  converted  into  purchasing  power  at  the  prices  of  1913. 
The  reasons  for  choosing  the  particular  price  indices  used  for  converting 
purposes  are  as  follows:  stockholders  in  factories  probably  possess  about 
the  same  average  income  as  stockholders  in  general,  and  the  income  tax 
reports  indicate  that,  in  1919,  about  as  much  in  dividends  went  to  persons 
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index  of  construction  costs  appears  to  be  the  logical  correcting  factor  to 
apply  to  business  savings  in  this  field. 


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98 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


Table  5L  indicates  that  the  purchasing  power  of  the  actual  disburse- 
ments to  the  propertied  classes  has  shown  a  somewhat  upward  tendency 
throughout  the  decade  and  that  the  savings  made  by  the  business  enter- 
prises in  this  field  increased  to  very  unusual  proportions  during  the  years 
1916  to  1917  and  remained  moderately  high  even  in  1918. 

§  5g.  The  Fraction  of  the  Net  Value  Product  Paid  Out  as  Wages  or 

Salaries 

Table  5M  measures  the  fraction  of  the  net  value  product  of  the  industry 
going  to  the  employees. 

TABLE  5M 

THE  ESTIMATED  NET  VALUE  PRODUCT  AND  THE  SHARE  THEREOF 

GOING  TO  THE  EMPLOYEES 

For  that  Part  of  the  Manufacturing  Industry  Included  in  the  Principal  Tables  of  the 

1914  Census 


A 

B 

C 

D 

E 

F 

Amounts 

Per  cent  of 

distributed  to 

Compensa- 

Total net 

net  value 

Calendar 

entrepreneurs 

Business 

tion  paid  to 

value  prod- 

product 

year 

and  other 

savings" 

employees  b 

uct 

going  to 

property 

(Millions) 

(Millions) 

(Millions) 

the  em- 

owners a 

B  +  C  +  D 

ployees 

(Millions) 

D  +  E 

1909 

$1,185 

$    512 

$  4,410 

$  6,107 

72.2 
71.6 

1910 

1,319 

599 

4,838 

6,756 

1911 

1,222 

276 

4,852 

6,350 

76.4 

1912. 

1,309 

525 

5,361 

7,195 

74.5 

1913 

1,455 

575 

5,946 

7,976 

74.5 

1914 

1,410 

137 

5,416 

6,964 

77.8 

1915 

1,197 

739 

5,945 

7,881 

75.4 

1916 

1,567 

2,320 

8,517 

12,403 

68.7 

1917 

2,220 

2,116 

10,621 

14,957 

71.0 

1918 

2,078 

1,424 

12,515 

16,018 

78.1 

a  See  Table  5L,  Column  E. 
b  See  Table  5E,  Column  E. 


The  last  column  of  Table  5M  makes  it  clear  that  the  employees  have 
been  receiving  from  two-thirds  to  three-fourths  of  the  net  value  product 
of  manufacturing.  While  their  relative  share  was  low  in  1916  and  1917, 
it  reached  a  higher  limit  in  1918  than  at  any  previous  time  in  the  decade. 

Questions  concerning  changes  in  the  efficiency  of  the  employees  cannot 
be  answered  without  further  research. 


, 


CHAPTER  6 
SIM  MARY  OF  THE  HAND  TRADES 

§  6a.  Introduction 

Prior  to  and  including  the  census  of  1900,  the  reports  of  the  Census 
Bureau  covered  the  activities  of  "the  hand  trades."  Since  that  date,  the 
study  of  industries  of  this  type  has  been  omitted  because  of  the  large 
expense  per  establishment  involved  in  the  collection  of  data.  A<  a  result, 
it  has  been  necessary  to  base  most  of  the  estimates  for  this  study  upon  the 
1900  Census  figures.  Exceptions  to  this  rule  are  the  power  laundries,  and 
custom  grist  and  saw  mills  (trades  for  which  later  census  reports  have  given 
information),  and  the  construction  industry  and  automobile  repair  indus- 
try, the  estimates  for  which  have  been  made  largely  from  other  sources 
than  the  Census. 

The  problem  of  estimating  the  net  value  products  of  the  hand  trades  has 
been  disproportionately  laborious,  but  because  of  the  paucity  of  reliable 
information  available,  has,  nevertheless,  not  produced  results  of  any  high 
degree  of  reliability.  On  the  contrary,  the  totals  presented  in  the  accom- 
panying tables  must  be  regarded  merely  as  very  rough  approximations  to 
the  actual  quantities  which  they  are  supposed  to  represent.  Laundries, 
perhaps,  form  an  exception  to  this  general  rule,  the  information  concern- 
ing them  being  so  much  more  complete  that  the  figures  presented  here  may 
be  regarded  as  moderately  reliable.- 

Since  it  is  felt  that  the  estimates  for  the  individual  trades  are  so  inaccu- 
rate, and  since  theinteresl  in  the  facts  concerning  most  of  them  is  presum- 
ably not  very  widespread,  it  seems  that  the  expense  of  publishing  a  de- 
scription of  the  special  procedure  used  for  each  trade  or  group  of  trades  is 
scarcely  warranted;  hence  a  summary  only  is  given  except  in  the  case  of 
the  construction  industry.  Suffice  it  to  say  that  the  estimates  for  the 
separate  fields  have,  in  every  instance,  been  made  with  as  great  a  degree 
of  care  as  the  nature  of  the  data  available  seems  to  justify. 

The  figures  for  the  construction  industry  are  published  in  detail  in 
Chapter  VII,  not  because  the  estimates  for  that  field  are  of  a  quality 
superior  to  the  others,  but  because  construction  is  the  largesl  of  the  hand 
trades  and  is  at  present  a  subject  attracting  wide  attention. 

99 


100 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  6A 


A   ROUGH   ESTIMATE  OF  THE  TOTAL  OF  WAGES  AND  SALARIES  RECEIVED   BY 
EMPLOYEES  IN  THE  HAND  TRADES  OF  THE  CONTINENTAL  UNITED  STATES 


Millions  of  Dollars 

Black- 

Repair 
of  sewing 

C  ustom 

smithing, 

machines, 

All 

Con- 

tailoring, 

Repair 

bicycle 

Laun- 

Shoe 

Custom 

type- 

Custom 

Custom 

Year 

hand 

struc- 

millinery, 

of  auto- 

repairing, 

dries 

repair- 

dress- 

writers, 

grist 

saw 

trades 

tion 

dyeing 

and 
cleaning 

mobiles 

cabinet 
making 
and  taxi- 
dermy 

ing 

making 

locks, 

clocks 

and 

jewelry 

mills 

mills 

1909 

$1,487 

$1,192 

$  87 

$  34 

$51 

$  63 

$13 

$33 

$10 

$1 

$2 

1910 

1,472 

1,146 

93 

48 

54 

71 

13 

34 

11 

1 

2 

1911 

1,443 

1,104 

93 

55 

54 

74 

14 

35 

11 

1 

1 

1912 

1,580 

1,218 

96 

67 

55 

80 

15 

35 

11 

1 

1 

1913 

1,667 

1,270 

102 

75 

57 

91 

16 

36 

11 

1 

1 

1914 

1,336 

932 

103 

90 

58 

86 

15 

38 

11 

1 

1 

1915 

1,352 

927 

108 

102 

58 

90 

15 

37 

12 

2 

1 

1916 

1,545 

1,066 

141 

106 

60 

96 

20 

38 

14 

1 

2 

1917 

1,575 

973 

204 

153 

61 

98 

23 

41 

18 

3 

2 

1918 

1,744 

964 

276 

220 

86 

106 

27 

41 

20 

2 

2 

1919 

306 

91 

34 

47 

25 

TABLE  6B 


A  ROUGH  ESTIMATE  OF  THE  TOTAL  SHARE  OF  THE  EMPLOYEES  IN  THE  NET  VALUE 
PRODUCT  OF  THE  HAND  TRADES  OF  THE  CONTINENTAL  UNITED  STATES 

(Wages  and  Salaries,  Plus  Payments  for  Contract  Work) 


Millions  of  Dollars 

Black- 

Repair 

of  sewing 

Custom 

smithing, 

machines. 

All 

Con- 

tailoring. 

Repair 

bicycle 

Laun- 

Shoe 

Custom 

type- 

Custom 

Custom 

\  ear 

hand 

struc- 

millinery, 

of  auto- 

repairing, 

dries 

repair- 

dress- 

writers, 

grist 

saw 

trades 

tion 

dyeing 

and 
cleaning 

mobiles 

cabinet 
making, 
and  taxi- 
dermy 

ing 

making 

locks, 

clocks 

and 

jewelry 

mills 

mills 

1909 

$1,498 

$1,192 

$  97 

$  34 

$52 

$  63 

$13 

$33 

$11 

$1 

$2 

1910 

1,485 

1,146 

104 

48 

55 

72 

14 

34 

11 

1 

2 

1911 

1,455 

1,104 

103 

55 

55 

71 

14 

35 

11 

1 

1 

1912 

1,593 

1,218 

107 

67 

56 

SO 

15 

36 

11 

1 

1 

1913 

1,681 

1,276 

114 

75 

58 

91 

16 

36 

11 

1 

1 

1914 

1,350 

932 

115 

90 

59 

86 

15 

39 

11 

1 

1 

1915 

1,366 

927 

120 

102 

59 

91 

15 

38 

12 

2 

1 

1916 

1,563 

1,066 

157 

106 

61 

97 

20 

3S 

14 

1 

2 

1917 

1,601 

973 

227 

153 

62 

99 

24 

41 

IS 

3 

2 

191S 

1,77s 

9(14 

307 

220 

88 

106 

28 

41 

20 

2 

2 

1919 

340 

92 

34 

47 

26 

, 


SUMMARY  OF  THE  HAND  TRADES 


101 


TABLE  6C 


ROUGH  ESTIMATE  OF  THE   NET   VALUE   PRODUCT   O]     THE   HAND  TRADES  IN 

CONTINENTAL  UNITED  STATES 


THE 


Millions  of  Dollars 

Custom 

Black- 
smithing, 

Repair 

of  sewing 
machines, 

All 

Con- 

tailoring, 

Repair 

bicycle 

Laun- 

Shoe 

Custom 

t\  pe- 

Custom 

Custom 

Year 

hand 

struc- 

millinery, 

of  auto- 

repairing, 

dries 

repair- 

dress- 

writers, 

grist 

saw 

trades 

tion 

dyeing, 

mobiles 

cabinet 
making, 

ing 

making 

locks. 

mills 

mills 

and 

clocks, 

cleaning 

and  taxi- 
dermy 

and 
jewelry 

1909 

$2,615 

S  1.959 

$209 

S  59 

$124 

$98 

S  53 

$68 

$33 

S  <s 

$4 

1910 

2,521 

1,806 

223 

/.) 

131 

116 

55 

69 

33 

9 

4 

1911 

2,484 

1,734 

222 

91 

133 

128 

57 

72 

34 

10 

3 

1912 

2,685 

1,885 

230 

11  1 

135 

144 

61 

72 

34 

8 

4 

1913 

2,521 

1,669 

244 

122 

139 

162 

64 

71 

31 

8 

4 

1914 

2,292 

1,413 

247 

149 

142 

157 

60 

7s 

34 

8 

3 

1915 

2,326 

1,413 

258 

171 

142 

154 

61 

i  i 

36 

11 

3 

1916 

2,702 

1,647 

337 

184 

146 

171 

82 

~s 

43 

10 

4 

1917 

2,601 

1,267 

488 

266 

148 

175 

94 

84 

r,<\ 

19 

1 

1918 

2,984 

1,280 

661 

367 

210 

191 

111 

83 

hi 

15 

0 

1919 

732 

222 

137 

97 

77 

§  6b.  Analysis 

Table  6D  contains  an  analysis  of  the  combined  results  presented  in  the 
immediately  preceding  tables.  It  shows  that  there  has  probably  been 
relatively  little  change  in  the  size  of  the  fraction  of  the  total  product  of 
this  group  of  industries  received  by  the  employees,  the  share  remaining  in 
the  neighborhood  of  three-fifths  of  the  whole.  It  also  appears  that  while 
the  average  nominal  wage  has  risen  sharply  throughout  the  decade,  there 
has  been  but  little  increase  in  the  earnings  when  measured  in  terms  of 
money  of  constant  purchasing  power. 


102 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  6D 


AX  ESTIMATE  OF  THE  SHARE  OF  THE  EMPLOYEES  IN  THE  NET  VALUE 
PRODUCT  OF  ALL  HAND  TRADES  COMBINED 


A 

B 

C 

D 

E 

F 

G 

H 

Purchasing 

Per  cent  of 

Total  num- 

Average 

Index  of 

power  of 

Share  of 

net  value 

ber  of 

annual 

prices  of 

the  average 

Net  value 

em- 

product 

employees 

earnings 

goods 

annual 

\  ea  r 

product  a 

ployees  b 

going  to 

normally 

per 

consumed 

earnings 

(Millions) 

(Millions) 

employees 

;it  Inched  to 

employee 

by  manual 

per 

100C 

hand  trades 

C 

and 

employee 

B 

(Thousands) 

E 

clerical 
workers  c 

F 
G 

1909 

$2,615 

$1,498 

57.3 

2,144 

$    699 

.  955 

$732 

1910 

2.521 

1,485 

58.9 

2,182 

681 

.978 

696 

1911 

2,484 

1,455 

58.6 

2,215 

657 

.  984 

667 

1912 

2,685 

1,593 

59.3 

2,230 

714 

.994 

719 

1913 

2,521 

1,681 

66 . 7 

2,248 

748 

1.000 

748 

1914 

2,292 

1,350 

58 . 9 

2,108 

640 

1.01 

634 

1915 

2,326 

1,366 

58 . 7 

1,972 

693 

1 .  03 

673 

1916 

2,702 

1,563 

57 . 8 

1,861 

840 

1.10 

763 

1917 

2,601 

1,601 

61.6 

1,695 

945 

1.29 

732 

1918 

2,984 

1,778 

59 . 6 

1 ,489 

1,194 

1  .  58 

756 

a  See  Table  6C. 
b  See  Table  6B. 
e  See  Table  2C. 


S 


CHAPTER  7 

THE  CONSTRUCTION  INDUSTRY1 

(Shipbuilding  Excluded) 
§  7a.  Introduction. 

This  is  one  of  the  so-called  hand  trades  of  which  the  Census  Bureau  has 
taken  no  cognizance  since  1900.  Even  in  that  year,  according  to  state- 
ments in  the  Census  volume,  reports  were  not  secured  from  a  large  pro- 
portion of  the  smaller  concerns;  hence  the  Census  totals  for  1900  cannot 
be  taken  to  represent  the  size  of  the  industry  at  thai  date  Without  any 
definite  Census  base  to  build  upon,  it  is  impossible  to  follow  the  usual 
method  of  extending  the  data  therefrom  by  means  of  other  available  cri- 
teria. The  actual  amount  of  construction  done  in  each  year  must,  then, 
be  estimated  from  sources  other  than  the  Census. 

§  7b.  Sources  of  Data 

Search  has  thus  far  revealed  only  two  extensive  collections  of  data  con- 
cerning the  volume  of  building.  A  record  of  building  permits  issued  in  the 
principal  cities  is  kept  by  certain  financial  newspapers.  These  data  throw 
no  light  upon  construction  in  the  rural  districts  and  do  not  include  con- 
tracts let  by  the  Federal  Government.  The  F.  W.  Dodge  Company, 
publishers  of  The  American  Contractor,  compiles  figures  supposed  to  rep- 
resent for  certain  well-defined  sections  of  the  country  the  total  volume  of 
contracts  let  each  year.  It  appears  probable,  however,  that  some  of  the 
smaller  contracts  fail  to  appear  in  their  records  and  that  the  records  were 
much  more  incomplete  in  former  years  than  at  present. 

Both  of  these  sources  of  data  are,  therefore,  more  or  less  unsatisfactory, 
but,  since  nothing  better  is  al  hand,'-' they  must  form  the  basis  for  estimat- 
ing the  amount  of  construction  undertaken  in  each  year.  The  way  in 
which  these  sources  have  been  used  is  described  in  the  following  pages. 

§  7c.  The  Volume  of  Construction 

From  the  reports  cf  building  permit-;  quoted  in  The  Statistical  Abstracts 

1  Includes  construction  of  buildings,  highways,  bridges,  new  railways,  docks,  etc. 

2  The  bulletin  entitled  Statistics  of  Incomi  published  by  the  Bureau  of  Internal  Revenue 
gives  data  concerning  gross  construction  by  corporations,  but  such  a  large  proportion  <>f 
building  is  dune  by  individuals  that  it  seems  impracticable  to  obtain  from  these  Qgures  totals 
re]  n  senting  the  entire  industry. 

in:; 


104  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

of  the  United  States  for  various  years,  an  estimate  has  been  made  of  the 
building  permits  issued  by  the  list  of  cities  cited  in  the  1916  number.  The 
population  of  these  cities  in  1910  and  1920  can  be  ascertained  from  the 
Census  reports  and  the  fraction  of  the  population  of  the  entire  United 
States  residing  in  these  cities  in  the  various  years  has  been  closely  approx- 
imated by  aid  of  a  smooth  curve.  The  tentative  assumption  has  been  made 
that  the  amount  of  building  per  capita  in  these  cities  is  typical  of  the  coun- 
try as  a  whole,  and  an  estimate  for  the  entire  nation  has  been  made  upon 
this  basis. 

However,  these  building-permit  records  do  not  include  the  construction 
contracts  awarded  by  the  Federal  Government,  hence  it  is  necessary  to 
add  estimates  for  this  source.  A  careful  study  has  been  made  of  the  records 
of  the  Federal  Departments  and  certain  information  for  recent  years  has 
also  been  secured  through  the  courtesy  of  Mr.  Homer  Hoyt,  formerly  with 
the  Building  Materials  Division  of  the  War  Industries  Board.  The  esti- 
mates derived  from  these  sources  are  shown  in  Table  7A  and  are  there  con- 
verted to  indices  based  upon  the  value  for  1918. 

The  method  just  described  gives  an  estimated  gross  construction  value 
in  1918  of  $2,979,000,000.  The  F.  W.  Dodge  Company  reports  contracts 
in  1918  aggregating  $1,655,099,000,  for  that  part  of  the  United  States, 
east  of  the  Missouri  and  north  of  the  Ohio.  The  wealth  of  the  whole 
nation  is  estimated  from  the  Census  of  Wealth,  Debt,  and  Taxation  to 
have  been  in  1918  about  1.685  times  as  great  as  that  of  the  reporting  ter- 
ritory. If  construction  is  in  proportion  to  wealth,  then  the  total  contracts 
let  in  the  United  States  should  have  been  about  $2,786,000,000,  in  1918. 

It  seems  probable  that  the  rural  population  does  not  build  quite  as  much 
in  proportion  as  do  the  inhabitants  of  great  cities,  and  because  of  the  difficul- 
ties involved  it  also  appears  unlikely  that  the  F.  W.  Dodge  Company  gets 
a  record  of  every  building  contract  made.  Furthermore,  many  buildings 
are  constructed  without  any  contract.  Under  the  circumstances,  therefore, 
it  seems  well  to  average  the  estimate  for  1918  made  on  the  basis  of  build- 
ing permits  with  that  of  the  F.  W.  Dodge  Company.  The  resulting  aver- 
age is  $2,766,000,000.  This  figure  has  been  multiplied  by  the  construction 
index  previously  described  in  order  to  approximate  the  amount  of  construc- 
tion in  the  United  States  for  each  year.    The  results  appear  in  Table  7 A. 


, 


THE  CONSTRUCTION    INDUSTRY 


KC, 


TABLE  7A 


THE  VALUE  OF  CONSTRUCTION  WORK  IN  THE  CONTINENTAL  UNITED 
STATES  AS  ESTIMATED  FROM  THE  F.  W.  DODGE  COMPANY'S  RE- 
PORTS ON  CONTRACTS  LET  AND  THE  BUILDING  PERMITS  ISSUED 
IN  LEADING  CITIES 


Building 

F.  W. 

permits 

Ratio  of 

Private 

Federal 

Con- 

Sum  of 

Dodge 

Esti- 

issued in 

popula- 

building 

govern- 

preced- 

Co.'s est  i- 

mated 

Year 

a  selected 

tion  of 

in  L.  S.; 

ment  con- 

si met  ion 
work  by 

ing  three 

Iliate  nt 

value  of 

list  a  of 

given 

estimated 

struct  inn 

columns 

total 

consl  ruc- 

large 

cities  to 

from 

in  U.  S.<* 

railways-/ 

(Millions) 

(Mil- 

construc- 

tion work 

cities 

that  of 

permits'- 

(Millions) 

lions) 

tion 

in  U.S./ 

(Millions) 

U.  S.6 

(Millions) 

(Millions) 

(Millions) 

1909. . 

$772 

.2181 

$3,540 

$    123 

$16 

$3,679 

$3,708 

1910. 

726 

.2193 

3,311 

122 

38 

3,471 

:;.!98 

1911. . 

701 

.2210 

3,172 

143 

41 

3,356 

3,383 

1912. . 

754 

.2231 

3,380 

139 

29 

3.5  is 

3,576 

1913.. 

686 

.2242 

3,060 

153 

44 

3.257 

3,283 

1914. . 

631 

.  2257 

2,796 

154 

26 

2,976 

3,000 

1915. . 

654 

.2279 

2,870 

131 

20 

3,021 

3,045 

1916.. 

840 

.2298 

3,656 

90 

53 

3,799 

3,829 

1917.  . 

603 

.2315 

2,605 

419 

63 

3,087 

3.111 

1918.. 

363 

.2333 

1,556 

1,161 

28 

2,745 

$2,786 

'-'.7()6e 

a  For  list,  see  the  Statistical  Abstract  of  the  U.  S.  for  1916;  figures  partly  estimated. 

b  Calculated  by  aid  of  smooth  curves. 

c  Calculated  by  dividing  items  in  the  second  column  by  those  in  the  third. 

d  Compiled  from  records  of  various  Departments;  shipbuilding  and  railway  work 
excluded. 

e  Average  of  figures  in  two  preceding  columns. 

/The  ratio  of  2,766  to  2,745  is  1.008.  The  items  in  the  second  column  piece  ling 
have  been  multiplied  by  1.008  to  obtain  the  items  in  this  column. 

9  Equals  two-thirds  of  amounts  appropriated  by  railways  for  "Additions  to  Physical 
Property."    See  Statistics  of  Railways  by  Interstate  Commerce  Commission. 


§  7d.  The  Aggregate  of  Wages  and  Salaries 

Although   the  information   concerning  the  volume   of   construction  is 

scanty  and  unreliable  enough,  that  pertaining  to  the  division  of  the  gross 
receipts  between  employees,  entrepreneurs  and  other  property  owners 
in  this  field,  and  other  industries  contributing  materials  or  supplies  to 
this  industry,  is  still  less  adequate. 

Contractors  in  this  field  do  not  care  to  make  public  either  their  profits 
or  an  itemized  list  of  their  expenses.  Only  one  concern  has  been  discovered 
which  publishes  annual  reports,  and  even  these  reports  do  not  extend  over 
the  period  desired.  This  concern,  the  United  Stales  Realty  Co.,  is  fortu- 
nately a  large  operator  and  carries  on  building  enterprises  of  different  types 
in  various  parts  of  the  United  Slab's.  It  is  possible,  therefore,  that  its 
financial  history  may  be  rather  typical  of  that  of  construction  companies 


106 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


in  general.  However,  this  is  an  assumption  resting  upon  decidedly  slender 
foundations. 

The  Department  of  Internal  Affairs  of  Pennsylvania  shows  in  its  annual 
report  the  relationship  between  the  amount  paid  for  wages  and  salaries 
and  the  gross  value  of  construction  for  each  year.  Although  fluctuations 
from  year  to  year  doubtless  are  not  uniform  in  the  various  sections  of  the 
country,  it  seems  probable  that  the  trend  of  the  Pennsylvania  ratios  does 
not  differ  widely  from  that  of  the  country  as  a  whole.  In  the  absence  of 
more  complete  data,  it  has  been  necessary  to  rely  solely  upon  these  figures 
in  calculating  the  amount  of  the  payments  for  wages  and  salaries. 

Under  these  circumstances,  it  is  clear  that  estimates  of  the  various 
shares  in  the  net  value  product  of  the  building  industry  are  necessarily 
very  crude.  The  method  of  deriving  such  estimates  as  are  possible  from 
the  fragmentary  information  available  is  described  in  the  following  pages. 

Table  7B  furnishes  an  estimate  of  the  amount  paid  by  the  industry  to 
employees  in  the  form  of  wages  and  salaries.  It  is  based  wholly  upon  the 
assumption  that  the  Pennsylvania  ratio  of  this  amount  to  the  gross  value 
of  construction  is  the  same  as  the  average  ratio  for  the  entire  United  States. 

TABLE  7B 

AN  ESTIMATE  OF  THE  TOTAL  AMOUNT  RECEIVED  IN  THE  FORM  OF 
WAGES  AND  SALARIES  BY  EMPLOYEES  ENGAGED  IN  THE  CON- 
STRUCTION INDUSTRY 


Calendar  year 

Gross  value  i  f 

construction  in  the 

Continental 

United  States  a 

(Millions) 

Fraction  of  gross 
value  going  to  em- 
ployees 

Total  payments  for 

wages  and  salaries  e 

(Millions) 

1909 

1910.  . 

$3,708 
3,498 
3,383 
3,576 

3,283 
3,000 
3,015 
3,829 

3,111 

2,766 

.321.V/ 
.3276<* 
.3263  d 
.3406a 

. 3888 b 
.3107'' 
.30436 

. 2785 c 

.31276 
.34846 

SI,  192 
1,146 
1,104 

1,218 

1,276 
932 

1911 

1912 

1913 

1914 

1915 

1916 

927 
1,086 

973 
964 

1917 

1918 

a  See  Table  7 A. 

b  Assumed  to  be  same  as  in  Pennsylvania;  see  Reports  of  Pa.  Commissioner  of  Labor 
and  Industry  and  Report  on  Productive  Industries  for  1919  by  the  Pa.  Dept.  of  In- 
ternal Affairs. 

c  Based  on  ratio  of  wages  in  1916  to  those  in  1915  in  State  of  Pennsylvania. 

d  Interpolated  between  fraet  ion  of  gross  out  put  going  to  employees  in  the  U.  S.  according 
to  the  <  Vnsus  of  1900  (.2685)  and  the  Pa.  figures  for  1913.  Changes  in  the  hourly  wage 
rate  for  building  labor  were  used  as  aids  in  the  interpolation.  For  wage  rates,  see  Table  7C. 

«  Product  of  two  preceding  columns. 


S 


THE  CONSTRUCTION   INDUSTRY  107 

§  7e.  The  Share  of  the  Entrepreneurs  and  Other  Property  Owners: 

First  Estimate 

The  next  step  necessary  was  the  computation  of  the  share  going  to 
entrepreneurs  and  other  property  owners.  The  starting  point  was  the 
partial  census  of  the  building  industry  in  1900.  In  Volume  7,  Part  1,  page 
ccxlvi,  of  the  Manufactures  Census  for  that  year,  there  is  given  a  summary 
of  the  findings.  It  shows  a  payment  of  $1 00,898,680,  for  wages  and  $321,- 
339,847,  for  materials.  Depreciation  was  assumed  to  have  been  high  and 
has  been  estimated  at  10'  (  annually  on  the  capital  invested.  This  would 
give  a  depreciation  allowance  of  819, 372,504.  By  adding  this  amount  to 
the  reported  expenses  of  production  and  deducting  the  sum  from  the  gros- 
value  of  the  products,  the  amount  received  by  the  entrepreneurs  for  their 
services  and  for  the  use  of  their  invested  resources  was  estimated  at 
$119,767,815. 

A  foundation  having  thus  been  laid,  the  next  essential  was  to  estimate 
the  relative  shares  of  the  leading  productive  agents  for  the  different  years. 
The  steps  in  order  were  as  follows: — 

First,  a  weighted  index  of  wages  per  hour  in  the  building  trades  was 
computed  from  the  data  furnished  in  Bulletins  131  and  259  of  the  United 
States  Bureau  of  Labor.  The  weights  used  for  the  different  occupations 
correspond  to  the  number  of  men  engaged  in  each  trade  in  1910  as  esti- 
mated from  the  data  in  the  Census  of  Occupations.    They  are  as  follows: — 

Bricklayers 156 

Building  Laborers 686 

Carpenters 696 

Hod  Carriers 170 

Inside  Wiremen 50 

Painters 278 

Plasterers 50 

Plumbers  &  Gasfitters 105 

Steam  Fitters 35 

Stone  Masons 39 

Structural  Iron  Workers II 

StoneCutters 10 

The  indices  for  each  trade  were  reduced  to  a  common  base,  then  multi- 
plied by  the  weights  specified,  and  an  average  of  the  indices  obtained. 
This  average  index  appeals  in  'Fable  7C. 

Average  index  numbers  for  the  price  of  building  materials  were  taken 
from  page  179  of  Bulletin  149  of  the  Bureau  of  Labor  Statistics  and  from 


108 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


the  Statistical  Abstracts  of  the  United  States  for  1918  and  1919  on  pages 
578  and  568  respectively.  These  indices  were  converted  by  division  to 
the  common  base  1913. 

The  profits  from  construction  are  shown  in  the  annual  reports  of  the 
United  States  Realty  Company.  This  company  also  derives  a  large  income 
from  rentals.  General  expenses  were  divided  in  proportion  to  the  respec- 
tive receipts  from  these  two  sources  and  the  fraction  apportioned  to  con- 
struction was  subtracted  from  the  profits  from  that  field.  Unfortunately, 
the  operations  of  the  United  States  Realty  Company  only  go  back  to  1904, 
hence  it  was  necessary  to  manufacture  a  figure  to  represent  1899.  This 
quantity  was  assumed  to  bear  the  same  ratio  to  the  actual  profits  for  1909 
as  the  average  index  of  the  prices  of  wages  and  materials  in  1899  bears  to 
the  corresponding  average  in  1909.  The  imaginary  quantity  thus  com- 
puted for  1899  was  $903,000. 

An  estimate  of  net  profits  having  been  thus  arrived  at  for  each  year,  the 
actual  amounts  were  next  converted  to  an  index  number  based  upon  the 
year  1913.    Table  7C  shows  the  net  results  of  the  operations  just  described. 

TABLE  7C 

AN  ESTIMATE  OF  THE  RELATIVE  VARIATIONS  IN  PAYMENTS  GOING 
TO  SOME  OF  THE  LEADING  AGENTS  OF  PRODUCTION  IN  THE  CON- 
STRUCTION INDUSTRY 

(For  the  Continental  United  States) 


Estimated  net  profits 

of  the  United  States 

Realty  Company 

derived  from 

construction  & 

Indices  of  comparative  change 

(Base  1913) 

Year 

Profits  of 

U.  S.  Realty 

Company 

Wages  per  hour 

of  building 

workers  c 

Prices  of 
materials  c 

1899 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

$    903,000  a 

1,215,000 
1,102,000 
931,000 
1,113,000 
1,038,000 

892,000 
796,000 
392,000 
947,000 
1,485,000 

.870 

1.171 
1 .  062 

.897 
1.072 
1.000 

.859 
.767 
.378 
.912 
1.431 

.663 

.918 
.949 
.960 
.973 
1.000 

1.017 

1.024 
1.065 
1.147 

1.288 

.696 

.911 

1.010 

.996 

.976 

1.000 

.97 

.94 

1.01 

1.24 

1.506 

a  Assumed;  see  text  for  basis. 

b  Calculated  from  Annual  Reports. 

c  From  U.  S.  Bureau  of  Labor  Statistics  data;  for  description,  see  text. 

An  effort  was  next  made  to  use  the  data  just  presented  to  ascertain  the 
fraction  of  the  gross  value  of  the  output  of  the  industry  going  to  entre- 


S 


THE   CONSTRUCTION   INDUSTRY 


109 


preneurs  and  other  property  owners.  As  a  first  step,  the  actual  values 
representing  each  productive  agent  in  1899  were  multiplied  by  the  indices 
shown  in  Table  7C.  The  next  step  was  to  reduce  the  resulting  products 
to  percentages  of  the  gross  output  for  each  year.  In  1899,  85.40  per  cent 
of  the  gross  value  of  the  product  went  to  the  three  factors,  wages,  materials 
and  the  entrepreneur.1  For  want  of  better  evidence,  this  percentage  was 
assumed  to  have  remained  constant.  The  calculated  percentages  for  each 
year  were  therefore  made  to  total  85.40.  The  results  derived  appeal'  in 
Table  7D. 

TABLE  7D 

ESTIMATES  OF  THE  PERCENTAGE  OF  THE  GROSS  VALUE  OF  CON- 
STRUCTION GOING  TO  EACH  OF  THREE  IMPORTANT  AGENTS  IN 
THE  VARIOUS  YEARS 

(For  the  Continental  United  States) 


Year 

Relative  amounts  b  in  millions  of 
dollars 

Percentage  of  gross  value  of 
construction  e 

Profits 

Wages 

Mate- 
rials 

Total 

Profits 

Wages 

Mate- 
rials 

Total 

1899 

1909 
1910 
1911 

1912 

1913 

1914 

1915 
1916 
1917 
1918 

104.2 

140.3 
127.2 
107.4 
128 . 4 
119.8a 

102.9 

91.9 

45.3 

109.2 

171.4 

126.6 

175.2 
181.2 
183.3 
185 . 7 
190.9a 

194.1 
195.5 
203.3 
219.0 
245.9 

223.6 

292.7 
324.5 
320.0 
313.6 
321.3a 

311.7 

302 . 0 
324.5 

398.4 
483.9 

454.4 

COS.  2 
632 . 9 
610.7 
627.7 
632.0a 

608.7 

589 . 4 
573.1 
726.6 
901.2 

19.58 

19.71 
17.18 
15.03 
17.51 
16.20 

14.44 

13.34 

6.58 

12.  S3 

16.23 

23.78 

24.61 
24.41 
25.62 

25 .  28 
25.76 

27.20 
28  29 
30  '31 
25.72 
23  30 

42.04 

11     OS 

43.81 

11  75 
42.61 
43.44 

43.76 

43.77 
48.51 
46  85 
15  87 

85.40 

85.40 
85  40 
85 .  40 
85  40 
85.40 

85  40 
85 .  40 
85  40 
85  40 
85  40 

a  Amounts  as  shown  in  Census  of  1900;  here  used  as  liases. 
li  Derived  by  multiplying  the  bases  by  the  indices  recorded  in  Table  7( '. 
c  The  mode  of  deriving  these  percentages  is  illustrated  by  the  following  proportion 
representing  profits  in  1899:— 1.042:  4.544::  19.58:  85.40. 


From  data  furnished  on  pages  ccxlvi  and  50  of  Volume  7,  Part  1,  of  the 
Census  of  Manufactures  for  1900,  the  following  estimates  have  been  de- 
rived for  the  construction  industry: — 

i  The  entrepreneurs'  share  includes  not  only  net  profits  but  also  all  gains  due  to  resources 
of  any  sort  invested  in  the  construction  industry. 


110 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


Item  Thousands 

Wages $190,899 

Salaries 8,652 

Land  rent  a 966 

Building  renta 1,098 

Interest  paid  to  private  parties   (assumed  to  be  two- 
thirds  of  all  interest) 5,064 

Profits 119,768 

Total  Value  Product  in  1899 $326,447 

a  Assumed  to  be  five  per  cent  of  the  value  of  this  type  of  assets  devoted  to  the  industry. 

From  the  above  estimates,  it  appears  that  the  total  share  of  entrepre- 
neurs and  investors  is  about  1.054  times  that  of  entrepreneurs  alone. 

The  percentages  shown  in  the  sixth  column  of  Table  7D  have  therefore 
been  multiplied  by  this  factor  to  obtain  estimates  of  the  proportion  of  the 
gross  value  of  construction  going  to  the  propertied  classes. 

TABLE  7E 

FIRST  ESTIMATE  OF  THE  TOTAL  SHARE  OF  ENTREPRENEURS  AND 
OTHER  PROPERTY  OWNERS;  BASED  UPON  THE  CENSUS  OF  1900 
AND  THE  PROFITS  OF  THE  UNITED  STATES  REALTY  COMPANY 


A 

B 

C 

D 

E 

Calendar 
year 

Fraction  of 

gross  value 

constituting 

profits  a 

Fraction  of 

gross  value 

going  to 

entrepreneurs 

and  other 

property  owners 

1.054  X  B6 

Gross  value  of 

construction  c 

(Millions) 

Share  of  entre- 
preneurs and 
other  property 

owners 

C  X  D 

1909 

1910 

1911 

.1971 
.1718 
.  1503 
.  1751 

.1620 
.1444 
.  1334 
.  0ii5S 

.1283 
.  1623 

.2077 
.1811 
.  15S4 
.  1S46 

.  1708 
.  1522 
.1408 
.0iJ94 

.1352 
.1711 

$3,708 
3,498 
3,383 
3,576 

3,283 

3,000 
3,015 
3,829 

3,111 
2,766 

$770 
633 
536 

1912 

1913 

660 
561 

1914 

1915 

1916 

1917 

1318 

456 

428 
266 

421 

473 

a  See  Table  7D. 

b  For  explanation  of  ratio,  see  text. 

c  See  Table  7A. 


§  7f.  The  Share  of  the  Entrepreneurs  and  Other  Property  Owners: 

Second  Estimate 

Because  of  the  unreliability  of  the  basis  for  the  fractions  recorded  in 
Column  C  of  Table  7E,  it  seems  desirable  to  make  another  and  independent 


THE  CONSTRUCTION  INDUSTRY 


111 


estimate  of  the  share  of  the  entrepreneurs  and  other  possessors  of  property. 
This  has  been  done  by  first  estimating  certain  expenses  incurred  by  the 
builders  and  subtracting  the  amounts  thus  arrived  at  from  the  gross  value 
of  the  output.    Table  7F  illustrates  the  modus  operandi. 


TABLE  7F 


SECOND  ESTIMATE   OF   THE   SHARE   OF   THE    ENTREPRENEURS    AND 
OTHER  PROPERTY  OWNERS;  DERIVED  BY  SUBTRACTING  CERTAIN 

EXPENSES  FROM  THE  GROSS  VALUE  OF  CONSTRUCTION 


(Millions  of  Dollars) 


A 

B 

C 

D 

E 

F 

G 

Payments  not  going  to  entrepreneurs  or  property 
owners 

Gross 
value  of 
construc- 
tion d 

Share  of 

Calen- 
dar 
year 

Cost  of 

materials  a 

Wages  and 

salaries 

paid  b 

Miscel- 
laneous 

expenses 

0.16 
(B  +  C)  c 

Total 

B  +  C  +  D 

entrepre- 
neurs and 
property 
owners 
F  — E 

1909 .  .  . 

1910.  .  . 

1911.  .  . 

1912.  .  . 

1913      . 
1914. 

1915.  .  . 

1916.  .  . 

1917.  .  . 
L918. .  . 

$1,346 

1,277 
1,187 
1,284 

1,360 
1,219 
1,229 
1,462 

1,565 
1,283 

SI, 192 
1,146 
1,104 

1,218 

1,276 
932 

927 
1,066 

973 

964 

$406 
387 
367 
400 

422 
344 
345 

401 

405 
359 

$2,944 
2,810 
2,658 
2,902 

3,058 

2,495 
2,501 
2,932 

2,9  11 
2,606 

$3,708 
3,498 
3,383 
3,576 

3,283 
3,000 
3,045 
3,829 

3,111 

2,766 

-764 
688 
725 
674 

225 
505 
544 

897 

167 
160 

a  Excludes  those  used  in  shipbuilding;  calculate  1  from  data  given  in  the  Census 
reports  on  manufactures,  the  Government  bulletins  on  forestry,  the  reports  of  the 
Geological  Survey  on  The  Mineral  Resources  of  the  United  States,  various  numbers  of 
The  Statistical  Abstract,  and  the  Annual  Reports  of  the  Secretary  of  the  Navy. 

b  See  Table  7B. 

c  Ratio  in  1899  according  to  the  Census  of  1900. 

d  Sec  Table  7A. 

It  is  improbable  that  the  actual  fluctuations  in  the  share  of  the  entre- 
preneurs and  property  owners  were  as  violent  as  those  shown  in  Column  ( I 
of  Table  7F.  However,  since  I  here  seems  to  be  no  better  criterion  by  which 
to  adjust  the  estimates,  the  best  course  seems  to  be  to  leave  them  as  they 
stand,  remembering  meanwhile  that  they  are  not  accurate  enough  to  por- 
tray anything  more  than  general  tendencies. 

§  7g.  Purchasing  Power  of  Share  of  Entrepreneurs  and  Other  Property 

Owners 

In  Table  7G,  the  two  estimates  of  the  share  of  property  and  entrepre- 
neurial effort  have  been  averaged  and  reduced  to  a  basis  of  constant  pur- 


112 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


chasing  power  by  dividing  by  a  price  index  representing  estimated  changes 
in  expenditures  of  families  having  annual  total  expenses  of  $5,000.  The 
estimate  of  the  fraction  of  the  net  value  product  received  by  the  employees 
appears  in  Table  7H. 


TABLE  7G 


FINAL  ESTIMATE  OF  THE  SHARE  OF  THE  ENTREPRENEURS  AND 
PROPERTY  OWNERS  IN  THE  NET  VALUE  PRODUCT  OF  THE  CON- 
STRUCTION INDUSTRY 


Index  of 

Purchasing 

Estimate 
based  on 

Estimate 
obtained  bv 

Average  c 
of  two 

prices  of 
goods  con- 
sumed by 
families 
spending 
$5,000  per 

power  oi 

share  of 

entrepreneurs 

Calendar 

profits  of  the 

deduction  of 

preceding 

and  property 

year 

U.  S.  Realty 

Co  .a 

(Millions) 

expenses  b 
(Millions) 

estimates/ 
(Millions) 

owners  at 

prices  of 

1913* 

annum  d 

(Millions) 

1909 

$770 

$764 

$767 

.956 

$802 

1910 

633 

688 

661 

.977 

677 

1911 

536 

725 

631 

.984 

641 

1912 

660 

674 

667 

.999 

668 

1913 

561 

225 

393 

1.000 

393 

1914 

456 

505 

481 

1.013 

475 

1915 

428 

544 

486 

1.002 

485 

1916 

266 

897 

581 

1.088 

534 

1917 

421 

167 

294 

1.252 

235 

1918 

473 

160 

317 

1.448 

219 

a  See  Table  7E. 
b  See  Table  7F. 
c  Simple  arithmetic  average. 
d  See  Table  2G. 

e  Money  value  divided  by  price  index. 

/In  the  opinion  of  Col.  M.  C.  Rorty  (a  director  of  this  Bureau),  these  figures  are 
too  high. 


<* 


THE  CONSTRUCTION   INDUSTRY 


113 


TABLE  7H 


THE    ESTIMATED    NET    VALUE    PRODUCT    OF    THE    CONSTRUCTION 
INDUSTRY  AND  THE  SHARE  THEREOF  GOING  TO  THE  EMPLOYEES 


Calendar  year 

Share  of  entre- 
preneurs and 
other  property 
owners  a 
(Millions) 

Share  of  em- 
ployees b 
(Millions) 

Total  net  value 

product 

(Millions) 

Per  cent  of  net 

value  product 

going  to  the 

employees 

1909 .... 

$767 
661 
631 
667 

393 
481 
486 
581 

294 
317 

$1,192 
1,146 
1,104 
1,218 

1,276 
932 
927 

1,066 

973 

964 

$1,959 
1,806 
1,734 

1,885 

1,669 
1,413 
1,413 
1,647 

1,267 
1,280 

60  8 

1910 

63  4 

1911 

63  6 

1912 

64  6 

1913 

1914 

1915 

1916 

1917 

1918 

76.5 
66.0 
65.6 
64.7 

76.8 
75.2 

a  See  Table  7G. 
b  See  Table  7B. 


The  last  column  of  Table  7H  indicates  that  the  employees  receive  from 
three-fifths  to  four-fifths  of  the  net  value  product  and  that  this  proportion 
has  been  an  increasing  one  during  the  decade  under  consideration. 

From  the  standpoint  of  the  average  employee,  it  is  a  matter  of  much 
moment  to  know  whether  he  is  able  to  buy  more  or  less  with  his  wages  than 
he  could  have  done  a  decade  ago.  The  data  are  too  unreliable  to  be  de- 
pended upon  to  give  more  than  a  broad  outline  of  the  changes  that  have 
occurred.    The  estimates  appear  in  Table  71. 


114 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  71 


THE  PURCHASING  POWER  OF  THE  ESTIMATED  COMPENSATION  RE- 
CEIVED BY  THE  AVERAGE  EMPLOYEE  IN  THE  CONSTRUCTION 
INDUSTRY 


A 

B 

C 

D 

E 

F 

G 

H 

I 

Average 

number 

Fraction 

Number 

Average 

Index  of 

Purchas- 

Total 
salaries 

and  wages 
paid  a 

(Millions) 

Average 

full  time 

annual 

of  em- 

of 

attached 

pay  per 

prices  of 

ing  power 

Cal- 
endar 

ployees 

number 

to 

employee 

goods  pur- 

of annual 

actually 
working 

attached 
to 

industry 
(Thou- 

attached 
to 

chased  by 
manual 

earnings 
at  prices 

year 

compen- 
sation b 

(Thou- 

industry 

sands) 

industry 

and 

of  1913 

sands) 

actually 

D 

B 

clerical 

G 

B 

working  c 

E 

F 

workers 

H 

C 

1,585 

1909 

$1,192 

$    7S6 

1,516 

.957 

$    752 

.955  c 

$787 

1910 

1,146 

787 

1.456 

.910 

1,600 

716 

.978  c 

732 

1911 

1,104 

807 

1,368 

.845 

1,619 

682 

.984  c 

693 

1912 

1,218 

835 

1,458 

.902 

1,617 

753 

.994  c 

758 

1913 

1,276 

830 

1,537 

.956 

1,608 

793 

1 . 000  d 

793 

1914 

932 

835 

1.116 

.  782 

1,427 

653 

1.01'/ 

647 

1915 

927 

879 

1,054 

.816 

1,292 

717 

1.03'<* 

696 

1916 

1,066 

930 

1,146 

.960 

1,194 

893 

1 .  10  d 

812 

1917 

973 

973 

1,000 

.975 

1,026 

948 

1.29'' 

735 

1918 

964 

1,328 

726 

.959 

757 

1,273 

1.58<* 

806 

a  See  Table  7B. 

b  Based  on  average  wages  in  construction  industry  in  Pa.,  average  pay  of  carpenti  rx 
employed  by  railways,  and  the  union  scale  of  wages  as  shown  by  the  records  of  the 
U.  S.  Bureau  of  Labor  Statistics. 

c  Method  of  calculation  described  in  a  separate  report. 

d  U.  S.  Bureau  of  Labor  Statistics  index. 

So  far  as  can  be  judged  by  the  rather  crude  estimates  just  presented, 
the  economic  condition  of  the  building  workers  has  grown  neither  better 
nor  worse  during  the  decade  under  consideration. 

§  7h.  The  Total  Value  of  Construction 

It  is  a  matter  of  interest  to  compare  the  gross  amount  of  construction 
taking  place  in  the  United  States  with  the  growth  in  the  population.  A 
comparison  with  total  population  is  of  less  significance  than  one  with  the 
increase  in  the  number  of  inhabitants;  for  one  of  the  prime  reasons  for  new 
construction  is  the  need  of  transportation,  business  buildings,  housing  and 
other  accommodations  for  the  additional  members  of  the  population. 
The  fact  should  be  kept  in  mind  that  no  inconsiderable  share  of  the  con- 
struction work  during  1917  and  1918  went  to  meet  the  temporary  needs 
of  war  and  hence  added  little  to  the  total  permanent  improvements  in  the 


S 


THE  CONSTRUCTION   INDUSTRY 


115 


country.    Table  7J  compares  the  gross   figures  only,  as  it  is  impracticable 
to  segregate  that  part  of  the  work  which  was  transitory  in  nature. 

TABLE  7J 

THE  RELATION  OF  CONSTRUCTION  TO  POPULATION  AND  POPULATION 
GROWTH  IN  TIIK  CONTINENTAL  UNITED  STATES 


Calen- 
dar 
year 


1901). 

mm. 
mn. 

1912. 

1913. 
1914. 

1915. 
191G.. 

1917.. 
L918. 


B 


Gross 
value 
of  con- 
st motion  « 
(Millions) 


S3. 70S 
3,498 
3,383 
3,576 

3,283 

3,000 
3.04.", 
3,829 

3,111 

2,700 


C 


Index  of 
construc- 
tion 
costs  b 


939 

.970 
.960 
.987 

1.000 
.969 
.980 

1.126 


371 
481 


D 


(  1 1  OSS 

value  of 
const  mo- 
tion at  . 
prices  of 

1913 

(Millions) 

_B 

C 


$3,948 

3,000 
3,502 
3,623 

3,283 
3.096 
3,107 
3,401 

2,209 
1,868 


E 


Population 
of  Conti- 
nental 
U.  S.  in 

thousands  c 


90,370 
92,220 
93,811 
95,338 

97,278 

90,191 
100,12s 
101,722 

103,059 
104,182 


F 

G 

Value  of 

per  capita 

Incn 

construc- 

in popula- 

tion at 

tion  since 

prices  of 

preceding 

1913 

year** 

D 

(Thou- 

E 

sands) 

$44 

1,783 

39 

1.730 

37 

1.530 

38 

1,690 

37 

2.020 

31 

1,560 

31 

1.210 

33 

1,330 

22 

1,250 

18 

050 

II 


'ruc- 
tion per 
additional 

person  at 

prices  of 

1913 

D 

G 

82,214 
2,084 

2.2S!) 
2. 1  1 1 

1,625 
1.985 

2,5' N 

2.557 

1,815 
2,874 


a  See  Table  7 A. 

b  Derived  by  averaging  indices  representing  respectively  the  hourly  wages  of  building 
labor,  the  prices  of  lumber  and  building  materi  lis,  and  the  prices  of  metals  and  metal 
products,  using  weights  2,  2,  and  1  respectively.  For  data,  see  Table  7C  of  this  re- 
port, and  Bulletin  269  of  the  U.  S.  Bureau  of  Labor  Statistics. 

c  Derivation  described  in  Sec.  2a. 

d  See  the  lasl  column  of  Table  2A  for  data  from  which  this  is  derived. 


The  indications  are  quite  clear  thai  the  volume  of  construction  per 
capita  has  declined  almost  steadily  throughout  the  decade  and,  wore  the 
temporary  war  construction  for  1917  and  1918  omitted  from  consideration, 
the  building  shortage  in  those  years  might  be  found  to  be  considerable. 
However,  the  amount  of  construction  work  per  additional  member  of  the 
population  has  not  fallen  off.  It  is  unfortunate  that  the  paucity  of  data 
concerning  the  construction  industry  does  not  permit  of  more  accurate 
estimates  but  it  is  hoped  that  even  these  rough  approximations  may  give 
a  general  idea  of  the  situation  in  this  important  field. 


CHAPTER  8 

SUMMARY  OF  TRANSPORTATION 

The  tables  which  follow  combine  the  data  for  the  various  reported 
branches  of  transportation  and  give  totals  for  the  whole  field.  It  is  believed 
that  such  totals  may  be  of  interest  to  those  persons  who  desire  to  view  the 
situation  from  its  broader  aspects.  The  totals  are  all  obtained  by  com- 
bining the  similar  items  in  the  corresponding  tables  in  the  separate  reports. 

TABLE  8A 

THE  SHARE  OF  THE  ENTREPRENEURS  AND  OTHER  PROPERTY  OWNERS 
IN  THE  NET  VALUE  PRODUCT  OF  THE  TRANSPORTATION  INDUSTRY  a 


A 

B 

C 

D 

E 

F 

G 

Net  dis- 
bursements 
to  entre- 
preneurs 
and  other 
property 
owners  6 
(Millions) 

Business 
savings  & 

(Millions) 

Total  share 
of  entre- 
preneurs 
and  other 
property 
owners 
(Millions) 
B  +  C 

Purchasing  power  in  millions  at 
prices  of  1913  of 

Year 

Net  dis- 
bursements 
to  entre- 
preneurs 
and  other 
property 
owners  & 

Business 
savings  b 

Total  share 
of  entre- 
preneurs 
and  other 
property 
owners 
E  +  F 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

$879 

974 

1,013 

1,054 

1,107 
1,107 
1,097 
1,157 

1,192 
1.120 

$244 
257 
167 
170 

91 

24 

261 

453 

363 

157 

$1,124 
1.231 
Liso 
1,224 

1,198 
1,131 
1 ,359 
1,611 

1 ,555 

1,277 

$904 

987 

1,019 

1,054 

1,107 
1,095 
1,102 
1,077 

991 

SI  7 

$265 
271 
178 
173 

91 

24 

262 

380 

250 
107 

$1,170 
1,258 
1,196 
1,227 

1,198 
1,119 
1,363 
1,456 

1,241 
924 

a  Includes  Railways,  Switching  and  Terminal  Cos.,  Express  Cos.,  Street  and  Electric 
Railways,  Electric  Light  and  Power  Plants,  Telegraphs,  Telephones,  Transportation 
by  Water,  and  the  Pullman  Co. 

b  Aggregate  of  similar  items  in  separate  industrial  reports. 

A  study  of  Tables  8A,  8B,  and  8C  makes  it  clear  that  while,  for  the  owners 
of  transportation  enterprises,  1915  and  1916  were  relatively  prosperous 
years,  1917  showed  a  marked  falling  off  in  their  gains  and  1918  was  dis- 

116 


SUM  M  A  R  Y  OF  TRA  N  S 1  'ORTATIOX 


117 


TABLE  8B 


THE  SHAKE  OF  THE  EMPLOYEES  IX  THE  NET  VALUE  PRODUCT  OF  THE 

TRANSP<  >RTATII  ).\   1 X  DUSTRY  " 


A 

B 

C 

D 

Year 

The  total  ne1 

value  product  b 

(Millions) 

Total  share  of 
the  employees '> 

(Millions) 

Per  cent  of  net 

value  product 

paid  to  employees 

as  compensation 

for  services 

100  c 

B 

1909 

$2,765 
3,029 
3,069 
3,249 

3,336 

3.170 
3,428 

4,028 

4,539 
5,232 

$1,611 
1.798 
l.ss'.l 
2,025 

2,138 
2,040 

2,069 
2.117 

2. '.is.-. 

59.3 

1910 

59.4 

1911 

1912 . 

61.5 
62 . 3 

1913 

1914. 

64.1 

61.4 

1915 

1916 

1917 

1918 

1919 

60.  1 

60.0 

65.8 
75.6 

a  For  industries  included  see  Table  8A,  note  (a). 

b  Aggregate  of  similar  items  in  separate  industrial  reports. 


tinctly  the  worst  year  of  the  decade.  Currency  inflation,  coupled  with 
rate  regulation,  was  presumably  largely  responsible  for  this  state  of  affairs. 
On  the  other  hand,  in  1915  the  percentage  of  the  net  value  product 
going  to  the  employees  fell  below  normal  while  the  purchasing  power  of 
their  average  annual  earnings  did  likewise.  By  1918,  however,  this  per- 
centage had  risen  far  above  the  average  level  for  the  decade  and  the  pur- 
chasing power  of  the  average  earnings  had  also  increased  to  a  figure  dis- 
tinctly higher  than  that  for  any  preceding  year  of  the  period. 


118 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  8C 


THE  AVERAGE  ANNUAL  EARNINGS  PER  EMPLOYEE  ATTACHED  TO  THE 

TRANSPORT ATK  )N  INDUSTRY  c 


A 

B 

C 

D 

Average  an- 
nual earnings 
per  employee 

B  -=-  C 

E 

F 

Year 

Total  share 
of  the  em- 
ployees"6 

(Millions) 

Number  of 
employees 
normally  at- 
tached to  the 
transporta- 
tion field  & 
(Thousands) 

Index  of  prices 

of  goods 

bought  by 

manual  and 

clerical 

workers 

.955 

.978 
.984 
.994 

1.00 
1.01 
1.03 
1.10 

1.29 

1.58 

Purchasing 
power  of  aver- 
age annual 
earnings  per 
employee 
D  ^E 

1909  .  .  . 

1910  .  .  . 

1911  .  .  . 

1912  .  .  . 

1913  .  .  . 

1914  ..  . 

1915  .  .  . 

1916  .  .  . 

1917  ..  . 

1918  .  . 

$1,641 
1,798 
1,889 
2,025 

2,138 
2,040 

2,069 
2,417 

2,985 
3,956 

2,499 
2,614 
2,709 
2,768 

2,805 

2,828 
2,846 

2,S72 

2,933 

3,075 

S    657 

CSS 

697 
731 

762 
721 

727 
842 

1,017 
1.286 

$688 
703 
709 
736 

762 
714 
706 
765 

789 
814 

a  See  Table  8B,  Column  C. 

b  Aggregate  of  similar  items  in  separate  industrial  reports. 

c  For  industries  included  see  Table  8 A,  note  (a). 


CHAPTER  9 
STEAM  RAILWAY,  SWITCHING  AND  TERMINAL  COMPANIES 

§  9a.  Nature  of  Available  Information 

The  Interstate  Commerce  Commission,  for  a  number  of  years,  has 
required  the  railways  of  the  country  to  render  annual  statements  of  their 
business.  While  the  accounts  for  the  large  roads  (designated  as  ( 'lass  I), 
are  fairly  complete  for  each  year,  the  form  of  the  summary  reports  for 
"all  roads  considered  as  one  system"  has  changed  materially  from  time 
to  time,  making  it  somewhat  difficult  to  obtain  strictly  comparable  figures. 
Many  of  the  minor  items  have  been  grouped  together  in  these  condense  1 
summaries  and,  in  such  instances,  it  cannot  be  determined  to  which  cate- 
gories they  should  be  assigned.  The  data  for  the  switching  and  terminal 
companies  are  not  recorded  until  recent  years.  Here  and  there,  items  are 
omitted.  Owing  to  these  shortcomings  of  the  data,  it  is  certain  that  the 
figures  presented  herewith  contain  many  inaccuracies. 

Fortunately,  however,  the  major  items  of  interest,  namely  those  record- 
ing the  funded  debt,  dividends,  compensation  to  employees,  additions  to 
physical  property,  and  amounts  carried  to  surplus  have  been  reported 
each  year  and  presumably  the  figures  are  fairly  comparable  throughout. 
These  items  combined  apparently  constitute  at  least  95  per  cent  of  the 
value  dealt  with.  Under  these  circumstance-,  one  feels  safe  in  saying  that, 
outside  of  definite  errors  !  which  may  exist  in  the  statistics  furnished  to  the 
Interstate  Commerce  Commission,  the  figures  herewith  presented  are 
sufficiently  accurate  to  show  the  main  facts  desired.  A  computation, 
in  which  an  entirely  distinct  method  of  approach  was  used,  showed  a  value 
product  differing  by  not  over  two  or  three  per  cent  from  that  obtained  by 
the  process  finally  determined  upon  except  in  1909  and  L910,  years  in 
which  the  classification  of  the  data  was  less  complete  than  at  later  periods. 

§  9b.  Method  of  Utilizing  Data 

The  theory  underlying  the  selection  of  the  data  chosen  to  represenl  the 
value  product  of  the  industry  is  as  follows:  The  amount  carried  to  surplus 
is  the  joint  property  of  the  stockholders  and  constitutes  part  of  the  saving 
made  from  current  earnings.    Other  items  which  similarly  enter  into  sav- 

1  The  place  where  error  is  most  Likely  is  in  the  amounts  recorded  as  representing  the  annual 
surplus.  Errors  in  depreciation  accounts  give  rise  to  equally  large  errors  in  the  annual  sur- 
plus.   It  is  impossible  to  say  whether  the  depreciation  allowances  are  too  Large  or  too  small. 

119 


120  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

ings  are  funds  set  aside  to  compensate  for  the  original  sale  of  stock  below 
par,  and  additions  made  to  the  sinking  fund.  These  are  offset  to  some 
extent  by  bond  premiums  written  off  and  by  receipts  from  sinking  funds 
accumulated  in  earlier  years.  These  receipts  evidently  represent  the 
productivity  of  the  past  rather  than  of  the  present.  The  fact  that  the  dis- 
counts now  written  off  were,  in  the  past,  losses  to  the  corporation,  does  not 
alter  the  fact  that  the  assets  now  cancelling  these  discounts  are  part  of  the 
current  earnings  and  represent  savings  for  the  stockholders  which  might 
be  paid  out  in  dividends  if  the  directors  thought  that  policy  advisable. 
Sums  set  aside  from  earnings  for  additions  and  betterments  to  the  physical 
property  have  also  been  included  in  the  share  of  the  stockholders  because 
they  likewise  represent  savings  from  current  income. 

Items  classified  merely  as  "Miscellaneous  Appropriations  from  Income" 
have  not  been  included  in  the  current  income  for  it  is  assumed  that  most 
of  this  account  represents  funds  set  aside  to  cover  losses  of  one  sort  or 
another,  due  perhaps  to  depreciation,  obsolescence,  or  bad  investments. 

Changes  in  the  designations  and  classification  of  various  appropriations 
make  it  impossible  to  allocate  them  correctly.  A  careful  endeavor  has  been 
made  to  include  or  exclude  corresponding  items  in  each  year  and  it  is  be- 
lieved that  this  task  has  been  accomplished  with  a  fair  degree  of  success. 
The  amounts  in  doubt  are  too  small  to  invalidate  any  of  the  main  conclu- 
sions of  this  report,  even  if  some  of  the  items  have  been  misplaced. 

The  income  distributed  by  the  railways  in  the  form  of  interest  and  divi- 
dends is  partly  derived  from  inter-corporate  payments  and  partly  derived 
from  bond  interest  and  dividends  received  on  the  stock  of  corporations  out- 
side the  railway  field.  Payments  from  one  railway  to  another  should  evi- 
dently be  deducted  and  since,  in  dealing  with  other  industries,  it  has  been 
assumed  that  their  dividends  and  bonds  interest  have  been  paid  to  individ- 
uals, it  would  evidently  be  a  duplication  again  to  include  this  income  here. 
For  this  reason,  all  bond  interest  and  dividends  received  from  stocks 
owned  have  been  deducted  from  the  similar  items  paid  out  by  the  rail- 
ways. The  remainders  represent  only  payments  made  possible  by  the 
operation  of  railways  and  do  not  include  returns  from  the  investments  of 
railways  in  other  industries.  Salaries  and  wages  paid  are  evidently  individ- 
ual gains  made  possible  by  railway  activity  and  hence  must  be  included. 
A  trivial  item  appearing  in  the  later  accounts  is  entitled  "Uncollectible 
Revenues."  This  quantity,  in  each  case,  has  been  assumed  to  constitute 
a  part  of  the  net  value  product  of  the  railway  field,  for  it  represents  a  valu- 
able service  received  by  someone,  and  this  condition  is  not  altered  by  the 
fact  that  the  railway  company  has  not  been  paid  therefor. 

Since  the  year  1915,  the  Interstate  Commerce  Commission  has  included 
in  the  Statistics  of  Railways  a  summary  of  the  reports  of  switching  and  ter- 


STEAM  RY.,   SWITCHING  AND  TERMINAL  COS. 


121 


TABLE  9A 


ESTIMATES'  OF  THE  AMOUNTS  SAVED  FROM  CURRENT  REVENUES  BY  THE  ST]  \M 
RAILWAY,  SWITCHING  AND  TERMINAL  COMPANIES  OF  THE  CONTINENTAL  DNITED 
STATES 


(Millions  of  Dollars) 


Net  reduction 

Additions  and 

Net  addition 

Balance 

:arried 

of  security 

betterments  to 

to  sinking 

Total  savings 

discounts  « 

physical  property 

funds'* 

Year 

Switch- 

Switch- 

Switch- 

Switch- 

Switch- 

Rail- 

ing and 

Rail- 

ing and 

Rail- 

ing  and 

Rail- 

ing and 

Rail- 

ing and 

ways 

termi- 
nal COS. 

ways 

termi- 
nal cos. 

«  ays 

termi- 
nal i 

ways 

termi- 
nal cos. 

ways 

termi- 

Ending 

June  30 

1909. . . 

20.  3'/ 

c 

LM    9* 

c 

7.2o 

c 

79*    !•'■ 

c 

131.6 

1910. . . 

26. 7d 

c 

57   Si 

c 

9  . 5  To 

c 

122.0' 

c 

216  0 

1911. . . 

18. 7  d 

c 

62  3« 

c 

l:;.  '.'•/■ 

c 

23  •"•■ 

c 

1  Is     1 

191-' 

17.  6  c 

c 

44. 2e 

c 

11.'/' 

c 

ii  0< 

c 

7'i  5 

1913. . . 

32.1/ 

c 

66   1  ' 

c 

30.6/ 

c 

32  7/ 

c 

161    8 

1914 

15  5/ 

c 

tn  5/ 

c 

11    5/ 

c 

-■121.1/ 

c 

:,<\  6 

1915. . . 

17   9fl 

0.07 

30.7(7 

0.2»» 

10    1.7 

0  3  m 

36  7  7 

I    2  m 

21    7 

1  8 

1910. . . 

25. 9h 

0.22 

76  5* 

0.2n 

is   0* 

0  7  n 

191.4» 

6. 0« 

311.8 

7    1 

Calendar 

1916 

21.7  i 

O.oi 

84    1  i 

0  3> 

H  8 « 

ii  8' 

188. 1» 

3  2i 

309  n 

4.8 

1917. . . 

19.8* 

0.5« 

95    1- 

1  0« 

10  8  V 

0  (is 

151    ,  "' 

—1.6s 

280   t 

II    5 

1918*. 

G.8t 

O.Gf 

43.1.; 

0.3» 

9   7.'/ 

0  6t> 

53  5  " 

2   1i' 

113  1 

:;  8 

R  =  Interstate  Commerce  Commission — Statistics  of  Railwa 

""Amortization  of   Discount"   plus   "Stork  and   Debt    Discount    Extinguished"   minus   "l: 
Premium  on  Funded  Del  it." 

6  "Appropriation  to  Sinking  and  Other  Reserve  Fun  Is"  minus  "Income  from  Sinking  and  Other  Re- 
serve  Funds." 

c  Item  not  given  in  reports  of  Interstate  Commerce  Commission. 

d  Assumed  to  hear  the  .same  ratio  as  in  1912  (viz.  .0642)  to  the  sum  of  "Surplus"  and  "Dividends  Paid." 

e  R.  1912,  pp.  51-52. 

/R.  1914.  p.  52. 

a  R.  1915,  p.  49. 

h  R.  1916  (fiscal  year),  p.  51. 

*  R.  1910  (calendar  year),  p.  53;  figures  for  switching  and  terminal  companies  arrived  at  by  deducting 
railway  data  from  combined  figures. 

i  Item  for  Class  I  Operating  and  Non-Operating  roads  multiplied  by  1.013,  the  ratio  for  1910  of  the 
total  to  Class  I  for  this  item. 

ft  R.  1909,  ]>.  72. 

'  R.  1910,  p.  69. 

m  H.  1915,  p.  58. 

"  R.  1916  (fiscal  year),  p.  00. 

o  Assumed  to  vary  in  same  proportion  from  year  1910  as  does  the  sum  of  "Surplus"  and  "Dividi  nds 
Paid." 

/'  Equals  "Sinking  and  redemption  funds  chargeable  to  income"  plus  ^ppri  priati  ins  for  other  re- 
serves." 

9  R.  1911,  p.  53. 

r  Includes  "Advances  to  weak  lines  to  cover  deficits." 

s  R.  1917,  pp.  36-37. 

'  "Corporate"  statistics  for  roads  under  Federal  control  combined  with  figures  I  mtrolled  road-. 

«  Item  for  Class  I  Operating  and   N'on  » Operating  roads  multiplied  bj  0.97,  the  ratio  in  1916;  see  Note  « . 

v  R.  191.S,  pp.  in   17. 

i"  97%  of  159.3  the  increase  in  "Balance"  during  the  year  of  Class  1   Operating  Operating 

roads.    This  is  the  ratio  in  1916:  Classes  n  and  III  both  showing  decreases  in  assets. 

x  Net  corporate  income  total  appropriations  for  year;  after  1910,  equals  the  balance  at  the  end  of  the 
year  less  the  balance  at  the  beginning  of  the  yi 

V  The  ratio  of  this  item  for  all  roads  to  the  same  item  for  ( llass  I  <  (perating  and  Non-(  Operating  roads 
was  1.028  in  1916.  The  Item  for  this  year  has  been  multiplied  by  that  ratio  to  obtain  the  amount  here 
entered. 

2  The  item  for  this  year  is  that  for  Class  I  Operating  and  N'on  '  Ipi  rating  road-.  No  adjustment  has 
been  made,  for  the  1916  records  show  the  appropriations  by  other  classes  of  road-  to  have  been  negligible 

*  The  ratio  in  1916  of  this  item  for  all  to  the  same  item  for  Class  I  Operating  and  Non-Operating  roads 
was  1.051;  hence  the  item  for  this  year  for  Class  I  road-  has  been  multiplied  by  this  ratio. 

t  Item  for  Class  I  Operating  and  Non-Operating  roads  multiplied  by  1.003,  the  ratio  for  1910  of  the 
total  to  Class  I  for  this  item. 


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1 2  1  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

minal  companies.  The  total  value  product  of  this  field  is  only  about  two 
per  cent  as  large  as  that  of  the  railways — hence,  it  has  been  deemed  suffi- 
ciently exact  to  make  the  adjustment  for  the  years  preceding  1915  by  the 
simple  method  of  multiplying  the  railway  figures  by  appropriate  factors 
derived  form  a  study  of  the  ratios  in  1915  and  1916. 

§  9c.  The  Net  Value  Product  and  Its  Distribution 

The  estimates  derived  from  the  reports  of  the  Interstate  Commerce 
Commission  through  the  application  of  the  theories  and  methods  just 
described  are  presented  in  Tables  9A,  9B,  9C,  9D,  and  9E. 

Table  9E  shows  the  recorded  amounts  going  to  each  of  the  principal 
classes  of  recipients  during  the  fiscal  years  from  1909  to  1916,  and  also 
estimates  for  the  calendar  years  from  1909  to  the  latest  report  published 
by  the  Interstate  Commerce  Commission.  These  estimates  have  been 
made  simply  by  averaging  the  data  for  the  adjoining  fiscal  years.  This 
process  tends  to  smooth  out  to  a  degree  the  irregularities  due  to  cyclical 
or  chance  causes,  but  it  makes  the  direction  of  the  trend  more  evident. 

Perhaps  the  most  significant  column  in  Table  9E  is  the  last.  This 
shows  that  the  employees  have  been  receiving  from  three-fifths  to  three- 
fourths  of  the  net  value  product  of  the  industry,  the  fraction  varying 
materially  from  year  to  year  but  indicating  no  definite  trend  until  1917 
when  a  sharp  upward  movement  begins  and  continues  through  1918. 

§  9d.  The  Physical  Output  per  Employee 

Table  9F  illustrates  the  development  of  important  phases  of  railway 
activity.  The  data  have  been  estimated  for  the  calendar  years  in  order  to 
make  them  comparable  with  other  fields  of  industry. 


X 


STEAM  RY.,  SWITCHING    AND  TERMINAL  COS. 


1 25 


TABLE  9C 


THE  ESTIMATED  SHARE  OF  EMPLOYEES  IX  THE  ANNUAL  VALUE  PRODUCT  OF  THE 
STEAM  RAILWAY,  SWITCHING,  AND  TERMINAL  COMPANIES  O]  1  III.  <  <  (NTINENTAL 
UNITED  STATES 


(Millr  .:         D  illars) 


Compensation  paid  for  services 

Estimated 

Relief  and 

Switching  and  terminal 

I  Estimated 

.  .  impanies 

Esti- 

payments to 

pensions 

Year 

mated 

employees 

for  em- 

total share 

Railways 

Ratio  t  i 

Esti- 
mate 1 

1,  all 

for  personal 

ployees  ™ 

of  em- 

Amounts 

R.   R. 

injuries  o 

ployees 

reporte  1 

compen- 

panics 

sation 

amount J 

Ending 

June  30 

1909.  . 

S    988fl 

.02  Me 

M 

SI, 01  2 

S  9m 

S2»i 

024 

1910. . 

1.1440 

0246« 

28 

1.172 

11  a 

3» 

1,185 

1911.  . 

1,2ns -/ 

,0248e 

30 

1,238 

■■',!' 

1,2 

1912.  . 

1,252!/ 

0250« 

31 

1,284 

13  a 

1,300 

1913.  . 

1,381ft 

0252  c 

35 

1,416 

14  r 

[r 

1,433 

1914.  . 

1,381  i 

0254  e 

35 

1,416 

1 5  ? 

4* 

1,436 

1915.  . 

1,173/ 

36.  la 

0256  d 

30 

1,20  1 

12* 

:>' 

!  220 

1916.  . 

1,4016 

36  46 

11259'/ 

36 

1.440' 

1 

1,458 

Calendar 

1910. . 

1.507  c 

39.8c 

.  02  ,  ' 

10 

1,547 

1  1  -■ 

1.500 

1917.  . 

1,917  k 

0264  e 

51 

1,9  18 

16a: 

i  V 

1.990 

19 IS.  . 

2,0702 

,0264e 

70 

2,740 

15 

8 

2.703 

R   ■=  Interstate  Commerce  Commission — S  • 

a  R.   1915,  I).  31. 

b  R.  1916,  p.  lo. 

c  R.  1910,  pp.  32-34. 

<1  Computed. 

e  Assumed  to  vary  along  a  smooth  curve. 

/Compensation  to  railway  employees  multiplie  1  by  assume  1  ratios. 

9  R.  1912,  p.  29. 

ft  R.  1914,  p.  29.    Data  adjusted  for  absence  of  Class  III    roads  on  basis  o    p    iportion  of  v* 
by  i  hose  roads  in  1914. 

i  R.  1914,  p.  29. 

5  R.  1915,  p.  31;  wages  adjusted  by  assuming  that  tin'  missing  Class  III  wages  are  of  the  same  relative 
importance  as  Class  III  operating  expenses. 

k  1918  Report  of  Railway  Wage  Commission,  p.  102. 

I  Last  figure  correol — original  data  carried  to  more  decimals. 

m  ]{.  1909,  pp.  75-79. 

"  R.  1910,  pp.  73-70. 

o  iv  ;   of  total  paid  fur  all  injuries  to  persons;  assumed  that  employees  get  this  amount, 
persons  25%  and  attorneys  30%.    The  last  amount  is  not  i  he  pro  lucl  ol  tic-  railway  in  lustry,  according 
to  our  classification. 

P  H.  1911,  pp.  5S-00. 

1912,  pp.  56-58. 

1913,  pp.  51    57. 
{.   1911.  ,ip.  59-61. 


1  R. 
'■  R. 
»  R. 

'  R.  1915,  pp.  05-70. 
■ti  R.  1916,  fiscal  year,  pp.  07  89 
v  R.  1910  (Calendar  year),  pp.  66  70. 
"'  Data  for  Class  I  roads  only— others  do  not  rep  >rt;  amounts  doubtless  negligible. 

X  R.    1017,  pp.    10-43;  figures  lor  Cla<s  1    roads  adjuste  1  on  basi       i      I'M1'!  ratios  to  represent   all  roa  Is. 

V  If.   1917,  p.    13. 

s  R.  1918,  p.  21;  figures  for  Class  I  roads  multiplied  by    1.025,  the  1910  ratio  of  wages  on  all  roa 
wages  on  ('hiss  I  roads  only. 

*  Figures  for  Class   I    roads  multiplied  by    1.020  the  ratio   in    1916  -.1   all  road-  •  I    roads  only. 

R.  1918,  pp.  55-59. 


12G 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  9D 


MISCELLANEOUS  ITEMS  l\  THE  \  \l.l  K  PRODUCT  OF  THE  PRIVATELY 
OPERATED  RAILWAY,  SWITCHING,  AND  TERMINAL  COMPANIES  OF 
THE  CONTINENTAL  UNITED  STATES 

(Millions  of  Dollars) 


Uncollectible  revenues  reported 

Damages 
paid  to  non- 
employees 
for  personal 
injuries 

Estimated 

total  of 
miscellane- 
ous items 

Year 

Switching  & 

terminal 

companies 

Railways 

Estimated 

total,  all 

companies 

Ending 
June  30 

1909 

1910 

1911. 

1912. 

1913 

1914.. 
1915.. 
1916 
Calendar 
1916 
1917 
1918. 

.006' 
.  006  m 

.007" 
.005P 
.003* 

0.7b 

0.8" 

0.8" 
0.7p 
0.6' 

0.69 

0.0  9     ' 

0.79 
0.79 

0.8  9 
0.89 
0.7 
0.8 

0.8 
0.7 
0.6 

5.2a 

5.9& 
6.5  c 
7  .Qd 

7.6* 
8.0/ 
6.89 
6.9'' 

7.5* 

8.7i 

8.3* 

5.8 
6.5 

7.2 

7.7 

8.4 
8.8 
7.5 

7.7 

8.3 
9.4 
8.9 

R.  =  Interstate  Commerce  Commission— 

a  R.  1909,  pp.  75-79. 

b  R.  1910,  pp.  73-76. 

cR.  1911,  pp.  58-60. 

d  R.  1912,  pp.  56-5S. 

c  R.  1913,  pp.  54-57. 

/R.  1914,  pp.  59-61. 

o  R.  1915,  pp.  65-70. 

h  R.  1916  (fiscal  year),  pp.  67-89. 

»  R.  1916  (calendar  year),  pp.  66-76. 

i  R.  1917,  pp.  40-43,  figures  for  Class  I 

roads  adjusted  on  basis  of  ratio  in 

1916. 


Statistics  of  Railways. 
*  R.  1918,  pp.  55-59,  figures  for  Class  I 
roads  multiplied  by  1.020,  the  rati  3 
in  1916  of  all  roads  to  Class  I  roa  Is. 
l  R.  1915,  p.  58. 
m  R.  1916  (fiscal  year),  p.  63. 
»  R.  1916  (fiscal  year),  p.  51. 
°  R.  1916  (calendar  year),  p.  53. 
v  R.  1917,  pp.  34-36. 
9  Roughly  estimated. 
T  Estimated  at  25%  of  all  amounts  paid 

for  personal  injuries. 
■  R.  1918,  p.  46. 
t  R.  1918,  p.  43. 


, 


p 
< 

d 

i— i 

x 

Q 

H 

i-H 

r* 

►— 

- 


K 
- 


O 
- 

o 


- 

- 


"A 
H 
<! 
Eh 

02 

Q 
H 
H 

l-H 
<i 

H 

H     * 

R  c 
° 

rH       to 

S  -| 

O    I 

■a 


Q 

H 


K 

Per  cent 
of  net 
value 

product 
going 
to  em- 
ployees f 

59.5 
60.1 

62.4 

03.7 

65.8 
65.7 

60.9 
60.3 

i-  — 

■-  i- 
'O  t> 

0 

Estimated 

total  net 

annual  value 

product  d 

LO        01 

/       © 

rH          of 

—     — . 

1—1        — 
DC         Tl 

—          — 

~  i       N 

CO 

-  CO 
cr.       -. 

—  IO 

of     c  i 

2,984 
3,570 

1,702 
2,010 

2,049 
2,045 

2,246 

2,117 

1,925 
2,470 

Share  of 
employees  c 

o       -* 
H        CM 

t^       cc 
01         M 

—  f 
-.-.       -ri 

—  co 

to 

T.         -~ 

CO         ~ 

co      >-o 

os  .: 

03  I- 

pH 

i—l          rH 

O       — 

CO        o 
•  0         O 

oi      co 

co      co 

CC         CO 

—      — 

C         DC 

•M         — 

H 

cellaneous 
items  o 

CO        t- 

t^          X 

C5         GO 

X         X 

cr.  cr. 

i 

eo       t^ 

t^        00 

00       cs 

t^        X 

P 

CO 
1* 

0) 

"o 

.4 
>> 

3 
o 

V 

CO 

0) 
,3 

Receipts  and 

savings 

combined 

B  +  C 

iO        CO 
-r       O 
l>        00 

CO        O 
CO          1^ 

00       i- 
co       /- 
t^       CO 

852  e 
1,023 

—  A 

/   r 
cr.  i- 

CO        X' 

t^      — 

CO       X 

CO        00 

oo      co 

T}<             Ol 

O        t^ 

00         — 

X        'O 

T.         Q 

Net  dividends 

and  bond 

interest 

00         CO 
CO         CO 
Ui          CO 

-r       o 
CO        O 
CO           - 

"O         Tl 

/          O 

as 
O        O 

y_      o 

'"a 

::  Ti 

~  f- 

rj 

-a         -a 
GO         00 

co      os 

-a         -a 
t-       © 
CO        CO 
SO        CO 

o         -a 
C.        O 

co      co 

CO        t^ 

ca         aj 
>0>        CO 
1-         X 

CO        O 

•H 

o 

4) 

03 

ffl 

Corporate 

savings 

-      o 
©      n 

iC        i-1 

i~ 

.        a> 

—        — 

e>   as 
—  i- 
^:  — 

Tl  — 

-a        -o 

HH            O 

CO       oi 
--1         CM 

JO           o 

—      oo 

— 

-a         -i 
O        00 
CO        lO 

^           1 

as         a> 
— 

M         — < 

co 

< 

5h 

cs     c 

O        i— 
Cl         05 

i— i         i—i 

—  Ol 

—  — 
~          O! 

CO        — 

OS        c 
i—i         rH 

i—l             rH 

c       cr. 

r—               1—1 

i  -  r 

r— 1   r— 

OS    OS 

- —    1 — 

i 

I       o 
--   M  S  o 

".£   3  w 

-i         "-9 

-     o 

o       '-i 
os      os 

—        OI 

1—1        — 1 

cr-      © 

CO         -* 

1— c               — 

OS        3! 

iT          CO 

—        1—1 

os       r. 

+ 
- 
+ 

p 


"S 

ci 


it 

c= 

c 

-3 


Sj 


if 

X 

~' 

u 

_    — 

^ 

_     :- 

- 

+J 

rrj    >. 

r~ 

c3 

'C    93 

,5 

u   o 

;; 

-  s 

■  w 

- 

c  ~ 

i. 

F 

-   0 

b 

c 

- 

- 

-. 

— 

T.  

09 

.-  z 

'  ■-  z 

E 

0 

/. 

c: 

PmrJ  2;fO  o 

-  -  -.  ~  g .  | .  d 

_r  ^  _i    I    -  •       3 

^  ^  ^   TC  "=  — '    r- 

S  oS  03  5  2jJ  JS 

--  -  ~  --  -  I 

-  c    ^   =    "   =  =- 

-  -    -  --    =.  .-    - 
f.   I.  f. — 

C3    ^     «    "53    V    **n    ai 


L28 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  9F 


MEASURES   OF   ACTIVITY    OF    STEAM    RAILWAY,    SWITCHING,  AND 
TERMINAL  COMPANIES  ESTIMATED  FOR  THE  CALENDAR  YEARS 

(Data  for  the  Adjoining  Fiscal  Years  a  Averaged) 


Wages  and 
salaries  paid 

Number  of  em- 
ployees =  actually 

Revenue  freight 
carried 

Passenger  traffic 
(Billions  of 

employees 

at  work 

(Billions  of 

Year 

(Mil 

ions) 

(Thousands) 

ton  miles) 

passeng 

er  nines; 

Year 

Calen- 
dar year 

Year 

Calen- 
dar year 

Year 

Calen- 

Year 

Calen- 

ending 
June  30  b 

ending 
June  30 

ending 
June  30 

219/ 

dar 
year 

237 ' 

ending 
June  30 

dar 
year 

1!);)'.). 

$1,012 

$1,092 

1,540  d 

1,641 

29 . 1  / 

30.7' 

1910. 

1,172 

1,205 

1,742-/ 

1,742 

255/ 

25  U 

32 . 3  i 

32.8' 

1911. . 

1,238 

1,261 

1,742 « 

1,750 

254/ 

259' 

3  5.2/ 

33.2' 

1912. . 

1 ,284 

1,350 

1,759'/ 

1,817 

264/ 

234' 

33.1/ 

34.1' 

1913 

1,416 

1,410 

1,876/ 

1,814 

301/ 

297 ' 

31.6/ 

35.4' 

1914. 

1,416 

1,310 

1,753'' 

1,604 

288/ 

233 ' 

35.3/ 

34.0' 

1915. 

1,203 

1,322 

1,456/ 

1.575 

274  * 

309 ' 

31.8* 

33.2' 

1916. 

1,440 

1,547 1> 

l,695ff 

1,744'' 

340  * 

385  '■ 

33 . 6  * 

35 . 0  * 

1917. . 

1,9686 

1,834  i 

397^' 

40.0^ 

1918. . 

2,741'' 

L.937™ 

409  * 

43. 2k 

R.  =  Interstate  Commerce  Commission — Statistics  of  Railways. 

a  Years  ending  June  30. 

6  See  Table  9C. 

f  In  1915  and  1916,  the  switching  and  terminal  companies  employed  about  2.4',', 
as  many  men  as  the  railways;  hence  for  other  years  the  number  of  railway  employees 
has  been  multiplied  by  1.024. 

-/  Statistical  Abstract  of  U.  S.  for  1919,  p.  34  I. 

«  R.  1911,  p.  26. 

/  R.  1913,  p.  23  and  1915,  p.  26.  Adjusted  to  include  Class  III  roads  on  the  basis 
of  the  1912  ratio. 

a  R.  1916  (fiscal  year),  pp.  25-26. 

h  R.  1916  (calendar  year),  pp.  25-26. 

»  R.  1917,  p.  19. 

/  Statistical  Abstract  of  U.  S.  for  1919,  p.  797. 

*  R.  1918,  p.  37. 

'  Average  of  figures  for  two  overlapping  fiscal  years. 

m  R.  1918,  pp.  20-22. 

There  has  been  much  discussion  concerning  the  growing  efficiency  or 
inefficiency  of  railway  labor  during  the  last  decade.  Certain  facts  concern- 
ing this  issue  have  been  brought  out  by  our  investigation  and  are  presented 
in  Table  9G. 

This  Table  shows  a  very  marked  growth  in  the  output  per  employee, 
especially  in  the  amount  of  freight  transported,  the  increase  being  just 
about  fifty  per  cent  from  1909  to  1917.  Whether  this  change  was  the  result 
of  inventive  genius,  a  better  supply  of  equipment,  more  effective  manage- 
ment, or  greater  diligence  on  the  part  of  the  employees,  is  a  subject  still 
open  for  investigation.    The  fact  is  clear,  however,  that  in,  1917,  the  aver- 


, 


STEAM   RY.,   SWITCHING   AND   TERMINAL  COS. 


129 


TABLE  9G 


THE   AVERAGE   OUTFIT    PER    EMPLOYEE    ACTUALLY    AT    WORK    FOR 
STEAM  RAILWAY,  SWITCHING,  AND   TERMINAL  COMPANIES  COM 

BINEDa 


(Estimates  for  ( lalendar  Yi 


Calen- 
dar 
year 


1909. 
1910. 
1911. 
1912. 
1913. 

1914. 
1915. 
1916. 
1917. 
1918. 


Number  of 

ton  miles  of 
freight  per 
employee 


144,400 
140,000 
147,91)1) 
156,100 
103.500 

176,300 
1911,01)0 
209,100 
216,600 

211,000 


Passenger 

miles  pet- 
employee 


IS,  720 
18,810 
18,950 
18,750 
19,500 

21,  ISO 
21,050 
20,090 
21,810 
22,310 


Value  product 

per  employee 

at  prices 

current  in 

given  year 


$1,131 
1,165 
1,169 
1,181 
1,202 

1,260 
1,396 
1,490 
1,627 
1,843 


[ndex  of 
prices  of  rail- 
service  '< 
Base,  191  1 


102.3 
102.2 
102.0 

100.7 
100.0 

100.0 
99.3 

98  5c 

99  7c 
117.9c 


Value  product 
per  employee 
at  prices 
of  1914'^ 


$1,106 

l.l  1) 
l.l  11 
1,173 
1,202 

1,260 
1,406 
1,513 
1,632 
1,563 


a  For  sources  of  data,  see  Tables  9E  and  9F.  The  figures  here  given  are  obtained 
by  division  of  the  other  items  by  those  in  the  fifth  column  of  Table  9F. 

6  The  price  index  here  given  is  proportional  to  the  combined  value  of  10  freight  ton 
miles  and  1  passenger  mile.  This  ratio  represents  the  approximate  proportion  of  eac  i 
factor  in  the  output  of  1917,  and  is  fairly  representative  for  all  years.  Data  for  pairs 
of  fiscal  years  have  been  averaged  to  obtain  estimates  for  calendar  years.  See  Statistical 
Abstract' of  U.  S.  for  1919,  p.  332. 

c  Interstate  Commerce  Commission,  Statistics  of  Railways,  19 IS,  p.  37. 

d  Value  product  at  current  prices  divided  by  the  index  of  prices  of  railway  service. 


age  railway  employee  moved  much  more  traffic  and  obtained  a  materially 
larger  value  product  for  the  industry  than  he  did  in  1909,  and  the  increase 
in  the  value  product  was  real  and  not  merely  a  reflection  of  increase  I 
prices  for  the  service  furnished. 

§  9e.  Growths  of  Railway  Service  and  of  Population  Compared 

Another  interesting  comparison  is  that  of  the  relative  growths  of  railway 
service  and  of  population.  There  has  been  great  complaint  concerning  a 
shortage  of  railway  equipment  and  service.  Is  this  complaint  due  to  the 
fact  that  we  have  less  service  per  capita  than  formerly  or  does  it  mean  thai 
our  demand  has  increased?  'Fable  9H  gives  a  fairly  definite  answer  to  this 
query. 

It  is  clear  that,  from  1009  to  1014,  the  growth  of  railway  service  jusl 
about  kept  pace  with  population  but  that,  since  1915,  the  supply  of  rail- 
way service  has  far  outstripped  the  growth  in  numbers  of  people,  with  the 
result  that,  in  1017,  the  output  was  nearly  fifty  per  cent   larger  than  in 


130 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  9H 


THE  PER  CAPITA  SERVICE  RENDERED  TO  THE  PEOPLE  OF  THE  CON- 
TINENTAL UNITED  STATES  BY  THE  RAILWAY,  SWITCHING,  AND 
TERMINAL  COMPANIES  a 


Calendar 
year 

Estimated 

population  of 

the  Continental 

United  States 

(Thousands)  b 

Freight 

carried; 

Ton  miles 

per  capita 

Passenger 

miles 

traveled  per 

capita 

Net  value  produced  per 
capita  by  railway  industry 

At  prices 
current  in 
given  year 

$20.54 
22.00 
21.82 
22.51 
22.42 

20.38 
21.89 
25.54 
28 .  96 
34.27 

At  prices 
of  1914  c 

1909 
1910 
1911 
1912 
1913 

1914 
1915 
1916 
1917 
1918 

90,370 
92,229 
93,811 
95,338 
97,278 

99,194 
100,428 
101,722 
103,059 
104,182 

2,621 

2,758 
2,760 
2,976 

3,050 

• 

2,851 
3,075 
3,585 
3,853 
3.924 

340 
355 
354 
357 
364 

343 
330 
344 

:;ss 
415 

$20 . 08 
21.53 
21.39 
22.35 
22.42 

20.38 
21.93 
25.93 
29.05 

29.07 

"  For  origin  of  data,  see  Tables  9E  and  9F. 

b  Read  from  a  smooth  curve  based  upon  Census  figures. 

c  Figures  in  preceding  column  divided  by  price  index  shown  in  Table  9G. 

1914.  If  the  supply  of  railway  service  is  inadequate,  it  appears,  therefore, 
that  this  condition  arises  from  an  increasing  demand  and  not  from  a 
diminishing  supply. 

§  9f.  The  Purchasing  Power  of  the  Shares  in  the  Net  Value  Product 

Table  9E  showed  how  the  net  value  product  has  been  divided  among  the 
principal  classes  of  claimants  thereto,  but  the  absolute  amounts  there 
recorded  have  relatively  little  significance,  because  of  the  radical  changes 
in  the  purchasing  power  of  money  which  have  taken  place  during  the  last 
decade.  In  order  to  give  meaning  to  these  figures,  it  is  necessary  to 
divide  them  by  appropriate  price  indices.  In  Table  91,  this  process  has 
been  applied  to  the  compensation  of  the  employees  and  in  Table  9J,  the 
share  of  the  security  holders  and  other  property  owners  is  similarly  dealt 
with.  The  price  indices  employed  for  this  purpose  are  those  described  in 
§§  2b  and  2c.  The  reasons  for  their  use  have  been  stated  in  §  Ik  and  need 
not  be  repeated  here. 


S 


STEAM  RY,   SWITCHING   AND  TERMINAL  COS 

TABLE  SI 


131 


THE  NUMBER  OF  EMPLOYEES  AND  THE  AVERAGE  COMPENSATION 
RECEIVED  BY  THEM  FROM  RAILWAYS,  SWITCHING,  AND  TERMINAL 
COMPANIES 


A 

B 

C 

D 

E 

F 

G 

H 

Estimated 

Estimated 

Estimated 

Average 

Average  in- 

Average 

number  of 

fraction  of 

number  of 

Total  com- 

dex of  prices 

annual 

Calen- 

employees 

full  time 

employees 

pensation 

annual 

of  goods 

compen- 

dar 

actually 

that 

attached  to 

paid  to 

<■<  )!ii[  nata- 
tion per 

employee 
E  4-D 

boughl  by 

-  :t  ion  at 

year 

at  work  a 

average 

industry 

employees* 

manual  and 

the  prices 

(Thou- 

worker was 

(Thousands) 

(Millions) 

clerical 

of  1913 

sands) 

employed b 

B  -f-  C 

workers  d 

F  -^-G 

1909. . 

1,641 

.962 

1,705 

$1,105 

S    648 

.955 

$679 

1910. . 

1,742 

.981 

1,77.'» 

1,219 

687 

.978 

702 

1911. . 

1,750 

.963 

1,818 

1.277 

7D2 

.984 

713 

1912. . 

1,817 

.990 

1,834 

1,367 

745 

.994 

750 

1913.. 

1,814 

.988 

1,836 

1,434 

781 

1 .  000 

781 

1914. . 

1,604 

.873 

1,838 

1,328 

723 

1   01 

716 

1915 

1,575 

.  856 

1,840 

1,339 

72s 

1  03 

707 

1916. . 

1,744 

.947 

1,842 

1,566 

850 

1.10 

77:-! 

1917.  . 

1,834 

.988 

1,856 

1,990 

1,072 

1.29 

831 

1918. . 

1 ,937 

.989 

1,958 

2,763 

1,411 

1.58 

893 

a  See  Table  9F. 
b  See  §  2d. 
c  See  Table  9E. 
d  See  Table  2C. 

The  figures  in  Table  91  show  that  the  average  annual  compensation 
paid  by  railways  to  their  employees  has  risen  materially  since  1909,  the 
increase  up  to  1918,  when  measured  in  purchasing  power,  amounting  to 
something  over  thirty  per  cent.  During  this  period,  therefore,  the  increase 
in  money  earnings  more  than  kept  pace  with  the  rise  in  the  value  of  com- 
modities consumed  by  the  working  classes.  The  facts  brought  out  do  not 
show,  however,  whether  this  increase  in  earning  power  has  resulted  from 
a  monopolistic  organization  of  wage  earners,  from  increased  efficiency  of 
the  wage  earners,  from  an  increase  in  the  supply  of  railway  equipmenl  as 
compared  to  railway  laborers,  from  a  general  increase  in  the  wage  level,  or 
from  some  entirely  different  cause. 

The  purchasing  power  of  the  total  share  of  the  security  holders  increased 
rather  steadily  up  to  1914,  but,  since  that  date  has  fallen  materially,  until 
in  1918,  it  was  smaller  than  in  1909.  This  change  in  the  total  tells  nothing 
concerning  the  income  per  dollar  invested.  Since,  however,  it  is  believed 
that  the  total  investment  in  the  railway  business  has  been  increasing-,  it 
appears  that  the  recent  decline  in  the  total  income  of  the  security  holders 
must  have  been  accompanied  by  a  considerably  greater  fall  in  the  returns 
per  unit  of  investment. 


132 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  9J 


THE  PURCHASING  POWER  OF  THE  ESTIMATED  SHARE  OF  THE  SECURITY 
HOLDERS  IN  THE  VALUE  PRODUCT  OF  STEAM  RAILWAYS,  SWITCH- 
ING, AND  TERMINAL  COMPANIES  IN  THE  CONTINENTAL  UNITED 
STATES 


Disbursements  to  security  holders 

Corporate  savings 

Calendar 
year 

Amount 

in 
dollars  d 

Index  of 
prices  of 
articles 
consumed 
by  wealthy 
classes" 

Purchas- 
ing power 
in  terms 
of  prices 
of  1913  c 

Amount 

in 
dollars** 

Index  of 
construc- 
tion costs  b 

Value  of 
construc- 
tion pur- 
chasable 
at  prices 
of  1913  c 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

$568 
633 
664 
650 

685 

702 
680 
709 
704 

682 

.973 

.988 

.  995 

1.009 

1.000 

1.010 
.996 
1.074 
1.198 
1.364 

$584 
640 
667 
650 
685 

695 
683 
661 

587 
500 

$177 
171 
100 

88 
20 

—17 
172 
314 
281 
117 

.927 
.953 
.945 
.983 
1.000 

■  960 

.992 

1.194 

1  473 

1.499 

$191 

179 

105 

90 

20 

—18 
173 
263 
191 

78 

a  See  Table  2E,  based  upon  families  spending  $25,000,  each  annually. 

b  For  derivation  see  Table  5L,  note  g. 

c  Amount  in  dollars  divided  by  the  price  index. 

d  See  Table  9E. 


, 


CHAPTER  10 
PULLMAN  CAR    TRANSPORTATION 

§  10a.  Available  Information 

This  adjunct  of  the  railway  industry  has  been  covered  in  moderate 
detail  by  the  Interstate  Commerce  Commission  in  its  statistics  for  each 
year  since  1910.  The  reports  for  dates  preceding  1916  are  for  fiscal  years; 
hence,  in  order  to  reduce  the  information  to  a  calendar  year  basis,  the  sim- 
ple, though  somewhat  inaccurate,  expedient  of  averaging  the  items  for 
the  two  overlapping  fiscal  years  has  been  adopted.  For  101(5  and  later 
periods,  the  accounts  have  been  kept  for  the  calendar  years,  and  therefore 
require  no  adjustment  in  this  respect.  No  complete  information  for  years 
preceding  1911  is  available,  but  the  rough  estimates  shown  in  the  accom- 
panying tables  have  been  based  upon  the  annual  financial  reports  of  the 
Pullman  Company  as  they  are  quoted  in  Moody's  Manual  of  Industrials 
for  1919. 

§  10b.  The  Share  of  the  Stockholders 

Following  the  customary  procedure,  the  first  step  is  to  ascertain  the 
total  disbursements  to  investors  of  income  arising  from  the  operations  of 
this  industry.  To  arrive  at  this  figure,  the  receipts  from  other  corporations 
in  the  form  of  dividends  or  interest  on  funded  debt  have  been  subtracted 
from  the  dividends  paid  by  the  Pullman  Company.  The  amounts  shown 
by  the  reports  of  the  Interstate  Commerce  Commission  to  have  been 
"carried  forward  to  the  credit  of  profit  and  loss"  are  regarded  as  net  cor- 
porate savings  for  the  year.  These  savings,  plus  the  net  amounts  dis- 
bursed in  the  form  of  dividends,  are  assumed  to  represent  the  (Mil ire  share 
of  the  stockholders  in  this  industry.  Table  10A  sets  forth  the  tacts  in  this 
connection. 

In  Table  10R  the  same  items  have  been  adjusted  to  -how  the  purchasing 
power  of  the  income  of  the  stockholders  if  prices  had  remained  stationary 
at  the  level  of  1913.  This  method  gives  a  far  clearer  picture  of  the  changes 
which  have  actually  occurred  in  the  share  under  consideration,  than  does 
a  comparison  of  the  crude  money  income  for  the  various  years. 

A  study  of  the  two  following  tables  shows  that,  while  the  nominal  share 
of  the  stockholders  has  been  diminishing  to  a  moderate  degree,  the  fall  in 
the  purchasing  power  of  this  share  has  been  very  marked.     Although 

133 


134 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  10A 


THE  ESTIMATED  a  SHARE  OF  THE  STOCKHOLDERS  IN  THE  VALUE  PROD- 
UCT OF  PULLMAN  TRANSPORTATION  IN  THE  CONTINENTAL  UNITED 
STATES 


(Values  in  Thousands  of  Dollars) 


A 

B 

C 

D 

.  ^et 
dividends 
paid 
B  — C 

E 

F 

Year 

Gross 

dividends 

paid 

$8,100'"' 
8,875  ac 
9,442  ab 
9,440  «b 

9,440  °-b 

9,468  ab 

9,501  «b 

9,529  b 
9,544  b 
9,511'' 

Received 

from  other 

companies 

as  dividends 

or  interest  on 

funded  debt 

$190  d 

190  d 

191  ab 
196  ab 

190"'- 

188  ab 

189  ab 

ISO  b 
217  b 
337  b 

Corporate 
savings  e 

Total  share 
of  stockhold- 
ers 
D  +  E 

1909 

1910 
1911 
1912 
1913 

1914 
1915 
1916 

1917 

1918 

$7,910 
8,685 
9,251 
9,244 
9,250 

9,280 
9,312 
9,349 

9,297 

9,207 

$9,500"/ 
7,850  af 
2,414  «b 
3,126  ab 

3,308  ab 

2,486  «b 
2,607  ab 
2,174  b 
3,862  b 

787  b 

$17,410 
16,535 
11,665 
12,370 
12,558 

11,766 
11,919 
11,533 
13,159 
9,994 

a  Averages  of  the  quantities  for  the  two  calendar  years  overlapping  on  the  fiscal  year. 

b  Data  taken  from  last  page  of  each  of  the  respective  annual  Preliminary  Abstracts 
of  Statistics  of  Common  Carriers,  Compiled  by  the  Interstate  Commerce  Commission. 

c  Dividends  as  shown  by  Moody's  Manual  of  Industrials  multiplied  by  0.965,  this 
being  the  ratio  thereto,  in  1911,  of  the  amounts  reported  to  the  Interstate  Commerce 
Commission  as  paid  in  dividends. 

d  A  guess  based  on  the  records  for  the  succeeding  six  years. 

e  Entitled  by  the  Interstate  Commerce  Commission  "Balance  Carried  Forward  to 
Credit  of  Profit  and  Loss." 

/The  average  surplus  for  1911,  1912,  and  1913  shown  by  the  Interstate  Commerce 
Commission  reports  was  2.349  times  as  great  as  that  shown  by  the  report  in  Moody's 
Manual  of  Statistics.  The  items  in  the  latter  report  for  1909  and  1910  have  therefore 
been  multiplied  by  2.349.  It  is  not  unlikely  that  the  results  thus  obtained  are  consider- 
ably in  error. 

figures  showing  the  actual  investments  have  not  been  compiled,  it  appears 
that  the  total  amount  invested  in  the  industry  has  been  constantly  grow- 
ing larger  through  accumulations  of  surplus  or  savings,  hence  the  decline 
in  income  per  unit  of  invested  resources  is,  necessarily,  steeper  than  the 
fall  indicated  by  the  figures  recorded  in  the  last  column  of  Table  10B. 


<* 


PULLMAN  CAR  TRANSPORTATION 


135 


TABLE  10B 


THE   PURCHASING   POWER   OF   THE   STOCKHOLDERS'    SHARE   OF   THE 

INCOME  OF  THE  IMLLMAN  COMPANY 


A 

B 

C 

D 

E 

F 

Index  of 
consl  ruc- 
i  ion 

COStS  c 

G 

Cal- 
en- 
dar 

year 

Net  divi- 
dends paid 
by  Pullman 
Company  a 
(Thousands) 

Index  of  prices 
of  consumption 
goods  pur- 
chased by 
families  spend- 
ing $25,000 
annually 
therefor  & 

Purchasing 

power  of 

dividends  at 

prices  of 

1913 

(Thousands) 

B 

C 

Corpora 

savings 

of  Pullman 

( Jompany  ■< 

(Thousands 

Purchasing 
power  of  cor- 
porate savings 

at    price-  (if 

^  1913 
(Thousands) 
E 

F 

1909 
1910 

1911 
1912 
1913 

1914 
1915 
1916 
1917 
19  IS 

$7,910 
8,685 
9,251 
9,244 
9,250 

9,280 
9,312 
9,349 
9,297 
9,207 

.973 

.988 

.995 

1.000 

1.000 

1.010 
.996 
1.074 
1 .  198 
1.364 

$8,129 
8,790 

9,297 
9,244 
9,250 

9,188 
9,349 

8,705 
7,760 
6,750 

$9,500 
7,850 
2, 1 14 
3,126 
3,308 

2,4  sr, 
2,607 
2,174 
3,862 

7s7 

.920 
.962 
.941 

.9  17 
1.000 

.939 

.998 

1.200 

1.453 

1   550 

S 1 1  ».326 
vl  60 

3,233 
3,308 

2,566 
2,612 

1.S12 
2,658 

.-,  IS 

«  See  Table  10 A. 

b  Computed  by  means  of  a  special  study;  see  Table  21']. 

''Arithmetic  average  of  indices;  wages  of  building  laborers  (see  §  7e),  weighted  9 
and  the  Bureau  of  Labor  Statistics  indices  shown  in  Bulletin  269  weighted  as  follows: 
Metals  and  metal  products  5,  Doors,  Small  plate  glass,  Window-glass,  Maple  (hard  . 
Oak  (white  quartered),  and  Lead  Carbonate,  each  1. 


§  10c.  Share  of  the  Employees  in  the  Net  Value  Product 

The  next  problem  is  to  ascertain  the  number  of  the  employees  and  the 
share  of  the  total  value  product  which  they  receive.  Part  of  the  pay  of 
Pullman  employees  comes  in  the  form  of  lips  directly  from  the  passengers 
and  hence  does  not  appear  on  the  records  of  the  company.  This  is,  never- 
theless, quite  evidently  part  of  the  value  product  of  the  industry,  for  it  is 
considered  by  everyone  as  part  of  bis  expenses  of  travel.  An  estimate  for 
tips  is  therefore  included  here  as  part  of  the  share  of  the  employees.  The 
figures  appear  in  Table  IOC. 


130 


Till:  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  IOC 


THE  ESTIMATED  SHARE  OF  THE  EMPLOYEES  IN  THE  VALUE  PRODUCT 
ARISING  FROM  PULLMAN  TRANSPORTATION 


Number  of 

Average 

Total  wages 

Total  tips 

employees  at 

rate  of  pay 

paid  to  em- 

paid to 

Total  share 

^  ear 

work  on 

per  day  for 

ployees 

porters  h 

of  employees » 

June  30th 

employees 

(Thousands) 

(Thousands) 

(Thousands) 

1909. .  .  . 

13,800  a 

$1.65 d 

$    7,910  ffe 

$2,352  ae 

$10,262 

1910..  .  . 

14,770a 

1.68  d 

8,820  ge 

2,520  ae 

11,340 

1911..  . . 

15,024  b 

1  .  73  be 

9,175/ 

2,563 « 

11,738 

1912..  .  . 

15,129  b 

1 .  84  be 

9,827/ 

2,724  e 

12,551 

1913..  . . 

20,812  b 

1.96  be 

14,399  / 

2,854  e 

17,253 

1914..  . . 

20,1106 

1.96  ^ 

13,914/ 

2,823  e 

16,737 

1915.. . . 

19,106  b 

1.94  be 

13,084/ 

2,926  e 

16,010 

1916..  . . 

19,894  b 

2.04b 

14,326/ 

3,053 

17,379 

1917..    . 

19,276  be 

2 .  23  b 

15,174/ 

3,802 

18.976 

1918. .  .  . 

18,985  be 

3.05b 

20,440/ 

3,883 

24,323 

a  Assumed  to  vary  in  proportion  to  total  revenues,  using  the  quantities  in  1911  as  a 
base. 

b  Taken  from  last  page  of  each  of  the  annual  Preliminary  Abstracts  of  Statistics  of 
Common  Carriers,  published  by  the  Interstate  Commerce  Commission. 

c  Average  of  the  numbers  reported  employed  at  the  beginning  and  at  the  end  of  the 
year. 

d  Total  wages  divided  by  total  number  of  employees. 

e  Averages  of  the  quantities  for  the  two  fiscal  years  overlapping  on  the  calendar  year. 

/  Product  of  the  items  in  the  two  preceding  columns  multiplied  by  353,  this  figure 
being  the  estimated  number  of  days  per  year  for  which  an  employee  is  paid.  Most  of 
the  employees  work  by  the  month,  but  a  minority  are  employed  by  the  day. 

o  Assumed  to  vary  in  proportion  to  operating  expenses,  using  the  quantities  in  1911 
as  a  base. 

h  Assumed  to  equal  20  cents  per  berth  passenger;  number  of  berth  passengers  as 
recorded  in  the  Annual  Preliminary  Abstracts  of  Statistics  of  Common  Carriers  pub- 
lished by  the  Interstate  Commerce  Commission. 

»  Sum  of  items  in  two  preceding  columns. 

Table  10D  combines  the  data  of  Tables  10 A  and  10C  and  shows  the 
relative  shares  of  the  value  products  of  this  industry  going  respectively 
to  the  employees  and  to  the  stockholders.  The  figures  in  the  last  column 
show  a  rapid  increase  in  the  fraction  of  the  value  product  which  the  em- 
ployees receive  as  their  share,  the  increase  in  1918  being  very  striking. 


, 


PULLMAN    CAR   TRANSPORTATION 


137 


TABLE  10D 


THE  ESTIMATED  VALUE  PRODUCT  ARISING   FROM   PULLMAN  TRANS 
PORTATION  AND  THE  DIVISION  OF  THIS  PRODUCT  BETWEEN  THE 
EMPLOYEES  AND  THE  STOCKHOLDERS 


Thousands  of  dollars 

Per  rent  of  the 

Year 

Share  of 
stockholders  a 

Share  of 
employees  b 

Total  value 

product  of  i  lii- 
iiidustry 

value  product  wing 
to  the  employees 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

$17,410 
16,535 
11,665 
12,370 
12,558 

11,766 
11,919 
11,533 
13,159 
9,994 

$10,262 
11,340 
11,738 
12,551 
17,253 

16,737 
16,010 
17,379 
18,976 
24,323 

$27,672 
27,875 
23,403 
21,921 
29,811 

28,503 

27,92!) 
28,912 
32,135 

31,317 

37.1 
40.7 
50.2 
50.4 
58.0 

53 . 7 
57.3 
60.1 
59.1 

70 . 9 

a  See  Table  10A. 
b  See  Table  IOC. 

§  10d.  Average  Annual  Earnings  of  Employees 

An  increase  in  the  relative  share  of  the  product  does  not  necessarily 
indicate  an  absolute  gain  in  the  average  well  being  of  the  workers.  Table 
10E  represents  an  effort  to  show  whether  the  economic  condition  of  the 
employees  in  the  Pullman  industry  has  improved  or  grown  worse  during 
the  decade  under  consideration. 


138 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  10E 


THE  ESTIMATED  NUMBER  OF  EMPLOYEES  ATTACHED  TO  THE  PULL- 
MAX  INDUSTRY  AND  THE  PURCHASING  POWER  OF  THE  AVERAGE 
INCOME  WHICH  THEY  DERIVE  THEREFROM 


A 

B 

C 

D 

E 

F 

G 

H 

Index  of 

Estimated 

prices  of 

Average 

Number 

Estimated 

number  of 

Total 

Average 

goods 

earnings 

of  em- 

fraction of 

employees 

earnings  of 

earnings 

con- 

in pur- 

Year 

ployees 

employees 

attached 

employees  a 

per  em- 

sumed by 

chasing 

actually 

actually 

to  indus- 

(Thou- 

ployee 

manual 

power 

working  a 

working  b 

try 
BtC 

sands) 

E  ■*■  D 

and 

clerical 

workers  c 

F  +  G 

1909 

13,800 

.962 

14,340 

$10,262 

$    716 

.  955 

$749 

1910 

14.770 

.982 

15,040 

11,340 

754 

.978 

771 

1911 

15,024 

.969 

15,500 

11,738 

757 

.984 

770 

1912 

15,129 

.953 

15,880 

12,551 

790 

.994 

795 

1913 

20,812 

.979 

21,250 

17,253 

812 

1.00 

812 

1914 

20,110 

.935 

21,500 

16,737 

778 

1.01 

771 

1915 

19,100 

.904 

21,130 

16,010 

758 

1.03 

736 

1916 

19,894 

.975 

20,400 

17,379 

852 

1.10 

774 

1917 

19,276 

.979 

19,680 

18,976 

964 

1.29 

747 

1918 

18,985 

.984 

19,300 

24,323 

1,260 

1.58 

798 

a  See  Table  IOC. 

b  A  rough  estimate  derived  by  means  of  a  special  study;  see  §  2d. 
c  The  U.  S.  Bureau  of  Labor  Statistics  index  carried  back  by  means  of  a  special 
study;  see  Table  2C. 


Table  10E  makes  it  clear  that  while  the  Pullman  employees  received 
a  much  higher  average  money  compensation  in  1918  than  in  1909,  the 
purchasing  power  of  their  income  from  labor  was  but  slightly  higher  at 
that  date  than  in  the  first  year  mentioned. 

§  lOe.  The  Annual  Output  per  Employee 
Average  earnings  are  of  great  importance  from  the  standpoint  of  the 
employees.  The  employer,  on  the  other  hand,  is  likely  to  view  labor 
largely  in  its  relationship  to  production.  He  is  interested  in  the  amount 
of  work  accomplished  per  employee  hired.  Apparently  the  best  measure 
of  this  ratio  obtainable  from  the  records  of  the  Pullman  industry  is  the 
number  of  car  days  in  proportion  to  the  number  of  employees.  Car  days 
are  used  instead  of  car  miles  because  the  Pullman  employees  have  little  to 
do  with  moving  the  cars  in  which  they  work.  The  number  of  employees 
actually  working  rather  than  the  number  attached  to  the  industry  is 
chosen  as  a  divisor,  not  only  because  the  figures  for  the  former  are  more 


PULLMAN    CAR   TRANSPORTATION 


139 


TABLE  10F 


THE  RELATION  OF  THE  NUMBER  OF  CAR  DAYS  TO  THE  NUMBER  OF 
EMPLOYEES  ACTUALLY  AT  WORK  IN  THE  PULLMAN  INDUSTRY 


a  Averages  of  the  quantities  for  the  two  fiscal  years  overlapping  on  the  calendar 
year. 

b  Data  incomplete,  hence  no  significant  ratios  can  be  computed  for  these  years. 

c  Taken  from  the  last  page  of  each  of  the  annual  Preliminary  Abstracts  of  Statistics 
of  Common  Carriers,  published  by  the  Interstate  Commerce  Commission. 

d  See  Table  IOC. 


accurate,  but  also  because  the  employer  pays  wages  only  to  those  actually 
at  work. 

While  the  output  per  employee  varies  greatly  from  year  to  year,  there 
appears  to  be  no  definite  trend  either  upward  or  downward.  One  is  not 
justified,  therefore,  in  concluding  that  the  output  per  Pullman  employee 
has  either  increased  or  diminished  during  the  eight  years  covered  by  this 
study. 

§  lOf.  Relative  Growths  of  Pullman  Service  and  Population 

The  final  inquiry  in  this  investigation  has  as  its  end  an  attempt  to  answer 
the  question,  "Is  the  Pullman  service  keeping  pace  with  the  growth  of 
population?"  Table  10G  throws  light  upon  this  matter.  For  this  purpose, 
car  miles  have  been  compared  to  population;  for,  apparently,  the  car  mile 
is  the  factor  in  which  the  public  is  most  interested.  The  fact  should  be 
noted,  however,  that  any  changes  in  the  per  capita  volume  of  service 
measured  on  this  basis  are  to  be  ascribed  as  much  to  the  railways  as  to  the 
Pullman  companies,  since  the  cooperation  of  both  is  necessary  to  produce 
Pullman  car  mileage. 


140 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  10G 


PULLMAN  CAR  MILEAGE  PER  CAPITA  IN  THE  CONTINENTAL 

UNITED  STATES 


Year 

Number  of  ear  miles 
(Thousands) 

Population  of  the 

United  States  d 

(Thousands) 

Car  miles  per 
capita 

1909. 

a 

a 

641,723  6c 
674,375  6c 
704,341  be 

700,623  6c 
708,323  6c 
714,9166 
775,407  6 
697,213  6 

93,811 
95,338 
97,278 

99,194 

100,428 
101,722 
103,059 
104,182 

1910 

1911. 

6  84 

1912. 

7  07 

1913 

1914 

1915 

7.24 

7.06 
7  05 

1916. . 

7  03 

1917 

7  52 

1918 

6.69 

a  Information  lacking;  hence,  no  significant  ratios  can  be  computed  for  these  years. 
6  Taken  from  the  last  page  of  each  of  the  annual  Preliminary  Abstracts  of  Statistics 
of  Common  Carriers,  published  by  the  Interstate  Commerce  Commission. 

c  Averages  of  the  quantities  for  the  two  fiscal  years  overlapping  on  the  calendar  year. 
d  Estimated  by  means  of  a  special  study;  see  §  2a. 

Table  10G  shows  that  Pullman  service  varies  with  demand  and  fluctu- 
ates to  a  considerable  degree.  The  years  1917  and  1918  showed  large  oscil- 
lations, presumably  due  to  war  conditions.  The  figures  as  a  whole,  scarcely 
indicate  either  an  upward  or  downward  trend  in  the  amount  of  service 
furnished  per  capita. 


, 


CHAPTER  11 
EXPRESS  COMPANIES 

§  11a.  Introduction 

A  very  good  annual  report  entitled  "Statistics  of  Express  Companies" 
is  published  by  the  Interstate  Commerce  Commission.  This  report  makes 
it  possible  to  obtain  a  fairly  complete  and  accurate  statement  of  the  amount 
and  distribution  of  the  value  product  of  this  branch  of  industry. 

§  lib.  Disbursements  to  Security  Holders  and  Building  Owners 

The  withdrawals  from  the  Express  business  by  entrepreneurs  and  inves- 
tors consist  of  dividends  and  bond  interest.  Owners  of  buildings  obtain  a 
considerable  revenue  from  the  rent  of  those  buildings  which  are  devoted 
to  the  Express  business.  These  items  together  constitute  the  value  with- 
drawals going  to  entrepreneurs  and  other  property  owners. 

The  dividends  and  interest  received  by  security  holders  in  Express  Com- 
panies originate  to  no  small  degree  in  dividends  and  interest  on  bonds  paid 
to  the  Express  Companies  by  other  corporations.  For  the  reasons  set 
forth  in  §  9b,  the  Express  Companies  must  be  thought  of  merely  as 
agents  who  pass  this  income  along  to  the  final  recipients.  Table  11A  has 
been  constructed  on  this  basis.  It  reveals  the  great  irregularity  in  the 
amounts  paid  as  bond  interest  or  dividends  and  shows  the  rapid  decline 
during  the  decade  in  the  total  disbursements  to  the  security  holders. 

§  lie.  Total  Share  of  Security  Holders  and  Building  Owners 

The  share  of  the  security  holders  and  other  property  owners  in  the  cur- 
rent income  consists  of  receipts  in  hand  plus  corporate  savings.  Table  1  1  B 
shows  that,  during  seven  years  out  of  the  ten,  the  corporations  diminished 
their  assets, — in  other  words,  part  or  all  of  the  dividends  declared  wen4 
paid  out  of  past  savings  rather  than  from  current  earnings.  In  101S,  the 
deficit  became  far  larger  than  the  total  withdrawals,  the  propertied  classes 
losing  during  the  year  on  their  Express  Company  interests  ^14,003,000. 

In  order  to  make  the  magnitude  of  the  various  sums  show  the  change-; 
in  the  ability  of  the  propertied  classes  to  buy  consumption  goods  with  that 
part  of  their  income  received  from  Express  Companies  in  the  various  years, 
each  item  has  been  divided  by  a  price  index  representing  the  approximate 

HI 


142 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  11A 


DISBURSEMENTS  TO  ENTREPRENEURS  AND  OTHER  PROPERTY  OWNERS 
OF  VALUE  PRODUCT  ORIGINATING  IN  THE  EXPRESS  INDUSTRY 


Values  in  Thousands  of  Dollars 

Year 

Total 

dividends  « 

and  bond 

interest  paid 

by  Express 

Companies 

Dividends 
and  bond 
interest 
received  by 
Express  Com- 
panies from 
other  cor- 
porations 

$3,417  c 
4,233  d 
4,689  <- 
4,522/ 
4,095  a 

3,203  h 
3,134  i 
3,677/ 
3,722/ 
1,405  k 

Dividends 

and  bond 

interest 

originating 

in  Express 
industry  " 

$17,101 

20,132 

7,027 

3,938 

3,403 

2,244 

3,456 

12,387 

1,254 
747 

Rents  paid 

for  use  of 

offices  b 

Total  with- 
drawals by 
entrepreneurs 
and  other 
property 
owners 

1909'" 

1910'" 

1911 w.  . . . 

1912"'.  .  .  . 
1913'" 

1914'".  ..  . 
1915'".  ..  . 

1916 

1917 

1918 

$20,518  e 
24,365  d 

11,716  r 

8,460/ 
7,501  g 

5,452  h 
6,590  i 
16,064/ 
4,976/ 
2,152  A- 

$1,567  c 

1,641  d 
1,771 « 

1,949/ 
2,066  a 

2,093  h 
2,080  i 
2,127/ 
2,264/ 
2,435  * 

$18,668 

21,773 

8,798 

5,887 

5,472 

4,337 
5,536 
14,514 
3,518 
3,182 

a  Paid  either  from  current  income  or  surplus. 
1>  The  amount  here  entered  is  70  per  cent  of  the  amount  paid  by  the  Express  Com- 
panies, the  assumption  being  that  only  this  fraction  accrues  as  net  rent  to  the  owners 
of  the  offices,  the  rest  being  necessary  to  cover  depreciation,  repairs,  etc. 

E.  =  Annual  Report  on  the  Statistics  of  Express  Companies,  by  the  Interstate  Com- 
merce Commission. 

c  E.  for  1910,  pp.  15  and  26.  h  E.  for  1914,  pp.  13  and  21. 

13  and  23.  *  E.  for  1915-16,  pp.  11,  12  and  17. 

13  and  23.  i  E.  for  1916-17,  pp.  11,  12  and  17. 

13  and  23.  *=  E.  for  1918,  pp.  11,  13,  and  15. 

13  and  21. 
m  Each  of  the  quantities  stated  is  half  of  the  sum  for  the  two  fiscal  years  which 
overlap  on  the  given  calendar  year. 

"  Excess  of  items  in  second  column  over  those  in  third. 


d  E.  for  1911,  pp. 
e  E.  for  1912,  pp. 
/E.  for  1913,  pp. 
o  E.  for  1914,  pp. 


average  relative  prices  of  consumption  goods  purchased  at  each  date  by 
the  wealthier  classes  of  the  population  of  the  United  States. 


S 


EXPRESS  COMPANIES 


143 


TABLE  11B 


TOTAL  SHARE  OF  ENTREPRENEURS  AND  OTHER  PROPERTY  OWNERS 
IN  THE  VALUE  PRODUCT  OF  THE  EXPRESS  INDUSTRY 

(AMOUNTS  WITHDRAWN,  PLUS  CORPORATE  SAVINGS 


A 

B 

C 

1) 

E 

F 

G 

H 

Value  in 

thousands  of  dollars 

Values  in 

thousands 

at 

die  given  date 

Index  of 
prices  of 

Index  of 

at  prices 

of  1913  'i 

Amounts 

Year 

Amounts 

goods 

whole- 

dis- 

disbursed 

Cor- 

consumed 

sale 

bursed 

Corporate 

Total 

to 

porate 

by 

prices' 

to 

savings 

share 

property 

savings  6 

wealthy 
families 

property 

D  -J-  F 

owners  a 

owners 

C  +■  E 

1909  c  .  . 

$15,698 

$18,668 

—$2,970 

.  973 

07 

$19,186 

—83,062 

1910c  .  . 

14,895 

21,773 

—  6,s;s 

.988 

.99 

22,(137 

—  6,947 

1911c  .  . 

11,054 

8,798 

2,256 

995 

95 

8,842 

2,375 

1912c  .  . 

7,983 

5,887 

2,096 

1  000 

1.01 

5,887 

2.075 

1913  c  .  . 

4,816 

5,472 

—      656 

1.000 

1.00 

5,172 

—      656 

1914c  .  . 

3,830 

4,337 

—      507 

1.010 

1.00 

1,294 

—  1,507 

1915  c  .  . 

8,692 

5,536 

3,156 

.996 

1.01 

5,558 

3,125 

1916.... 

10,957 

I  1.514 

—  3,557 

1   071 

121 

13, 514 

—  2,869 

1917... 

2,162 

3,518 

—  1,356 

1    198 

1 .  76 

2.937 

—      770 

1918.... 

-14,003 

3,182 

-17,185 

1  364 

1.96 

2,333 

—  8,768 

a  See  Table  11  A,  last  column. 

b  Includes  "Income  appropriations  for  investment  in  physical  property"  plus  "  Bal- 
ance transferred  to  profit  and  loss"  minus  "Dividend  appropriations  of  surplus."  For 
data,  see  the  "Income"  and  "Profit  and  Loss"  accounts  in  the  various  Annual  Re- 
ports by  the  Interstate  Commerce  Commission,  on  The  Statistic*  <>f  Express  Compa 

c  Each  of  the  quantities  stated  is  half  of  the  sum  for  the  two  fiscal  years  which  overlap 
on  the  given  calendar  year. 

d  Money  values  divided  by  the  respective  price  indices. 

e  U.  S.  Bureau  of  Labor  Statistics,  Bulletin  269,  on  Wholesale  Prices,  p.  15. 


§  lid.  The  Share  of  the  Employees 

Table  11C  indicates  the  amount  of  the  value  product  of  each  year  going 
to  employees.  This  consists  largely  of  wages  and  salaries,  but  there  is 
included  an  important  item  entitled  "Commissions."  The  auditor  of  tin- 
American  Railway  Express  Company  states  that  practically  all  of  this 
amount  is  paid  to  railway  agents  at  small  stations  as  compensation  for 
their  efforts  in  handling  Express  business.  It  has  been  arbitrarily  assumed 
that  70  per  cent  of  the  amount  paid  by  Express  Companies  for  "Injuries 
to  Persons"  reaches  the  pockets  of  employees.  The  amount  is  too  -mall 
to  be  of  moment.  Similarly,  there  is  included  the  trivial  item  of  "Pen- 
sions." The  combination  of  the  above  items  gives  the  estimated  total  share 
of  the  employees. 


144 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  11C 


THE  SHARE  OF  THE  EMPLOYEES  IN  THE  TOTAL  VALUE  PRODUCT  OF 

THE  EXPRESS  INDUSTRY 


(Values  in  Thousands  of  Dollars) 


A 

B 

C 

D 

E 

F 

G 

H 

I 

Total 

Index  of 
prices  of 

goods 

bought  by 

manual 

and 

clerical 

workers  d 

Share  of 

Indem- 

compen- 

Total 

employ- 

Year 

Wages 

and 

salaries  a 

nity  for 
person- 
al in- 

Pen- 
sions a 

sation 

to  full 

time  em- 

Com- 
mis- 
sions a 

share  of 

em- 
ployees 

ees  at 
price 

level  of 

juries  ob 

ployees 

E+F 

1913 

B+C+D 

$6,922 

G  -  H 

1909  C 

$36,230 

$104 

$125 

$36,459 

$43,381 

.955 

$45,425 

1910  c 

39,238 

134 

135 

39,507 

7,489 

46,996 

.978 

48,053 

1911  c 

42,445 

146 

151 

42,742 

7,906 

50,648 

.984 

51,472 

1912  c 

45,710 

151 

164 

46,025 

8,173 

54,198 

.994 

54,525 

1913  c 

46,774 

172 

181 

47,127 

7,988 

55,115 

1.000 

55,115 

1914c 

43,926 

190 

209 

44,325 

7,320 

51,645 

1.01 

51,134 

1915  c 

44,510 

200 

245 

44,955 

7,421 

52,376 

1.03 

50,850 

1916 

52,345 

238 

275 

52,858 

8,502 

61,360 

1.10 

55,796 

1917 

64,356 

312 

310 

64,978 

.    9,382 

74,360 

1.29 

57,643 

1918 

82,437 

449 

317 

83,203 

10,240 

93,443 

1.58 

59,141 

a  All  data  taken  from  the  "Analyses  of  Operating  Expenses"  in  the  Annual  Reports 
by  the  Interstate  Commerce  Commission  on  The  Statistics  of  Express  Companies. 

b  70  per  cent  of  payments  made  by  Express  Companies. 

c  Each  of  the  quantities  stated  is  half  of  the  sum  for  the  two  fiscal  years  which  over- 
lap on  the  given  calendar  year. 

d  U.  S.  Bureau  of  Labor  Statistics  index  carried  back  by  this  Bureau.  For  details 
see  Table  2C. 

Table  11C  shows  that,  while  the  share  of  the  property  owners  has  been 
diminishing,  labor  has  been  getting  an  increasing  absolute  share  in  the 
product  of  the  Express  industry.  Since  the  number  of  employees  is  not 
recorded,  there  is  no  way  of  determining  accurately  whether  the  compen- 
sation per  employee  has  increased  or  diminished  during  the  decade. 

§  lie.  The  Total  Net  Value  Product  and  Its  Distribution 

In  Table  11D  appears  an  estimate  of  the  entire  value  product  of  the 
Express  industry.  To  the  shares  of  the  propertied  classes  and  of  the  em- 
ployees has  been  added  a  small  item  entitled  "Uncollectible  Revenue 
from  Transportation."  This  has  been  done  because  the  value  received  by 
the  shipper  in  such  cases  is  evidently  a  part  of  his  income  and  also  a  part 
of  the  product  of  the  Express  industry;  although  it  does  not  accrue  to 
either  the  Express  Companies  or  their  employees.  However,  the  amount 
is  too  small  to  be  of  consequence. 


EXPRESS  COMPANIES 
TABLE  11D 


145 


THE  ESTIMATED  NET  VALUE  PRODUCT  PER  CAPITA  OF  THE  EXPRESS 
INDUSTRY  IN  THE  CONTINENTAL  EXITED  STATES  AND  THE  PER 
CENT  OF  THE  NET  PRODUCT  GOING  TO  THE  EMPLOYEES 


A 

B 

C 

D 

E 

F 

G 

II 

I 

J 

(A 

mounts  in 

.housands) 

Per  capita 

Uncol- 

of value 

Population 

Value 

product 

Share  of 

lectible 

Total 

product 

of  United 

product 

Index  of 

at  prices 

entrepre- 

Share of 

charges 

value 

going  to 

States/ 

per 

prices  of 

of  Express 

neurs  and 

employees^ 

for 

product  of 

em- 

(Thou- 

capita 

Express 

service 

other 

trans- 

industry 

ployees 

sands) 

E-f-G 

service  0 

in  1913 

property 

porta- 

B+C+D 

C-^E 

100  H 

owners  b 

tion 

I 

1909« 

$15,698 

$43,381 

$20  e 

$59,099 

73.4 

90,370 

$0.65 

100.0 

$0.65 

1910« 

14,895 

46,996 

20  * 

61,911 

75.9 

92,229 

.67 

100.0 

.67 

1911a 

11,054 

50,648 

20 ' 

61,722 

82   1 

93,811 

.66 

100.0 

.66 

1912a 

7,983 

54,198 

20  e 

62,201 

S7.1 

95,338 

.65 

100.0 

.65 

1913a 

4,816 

55,115 

20  « 

59,951 

91.9 

97,278 

.62 

100.0 

.62 

1914a 

3,830 

51,645 

20  d 

55,495 

93.1 

99,194 

.56 

100.0 

.56 

1915a 

8,692 

52,376 

28  d 

61,096 

85.7 

100,428 

.61 

89.5 

us 

1916 

10,957 

61,360 

11  d 

72,358 

84.8 

101,722 

.71 

89  5 

.79 

1917 

2,162 

74,360 

71  d 

76,593 

97.1 

103,059 

.74 

89.5 

.83 

1918 

-14,003 

93,443 

76  d 

79,516 

117.5 

104,182 

.76 

98.6 

.77 

a  Each  of  the  quantities  stated  is  half  of  the  sum  for  those  two  fiscal  years  which 
overlap  on  the  given  calendar  year. 

&  See  Table  11B. 

e  See  Table  11C. 

d  From  Income  Accounts  in  Annual  Reports  of  the  Interstate  Commerce  Commis- 
sion on  the  Statistics  of  Express  Companies. 

e  Assumed  same  as  in  1914. 

/  See  Table  2A. 

a  Roughlv  estimated  from  the  Reports  of  the  Interstate  Commerce  Commission,  Vol. 
XXXV,  p.  6,  and  Vol.  L,  p.  385. 

The  conclusion  to  be  drawn  from  Table  11D  is  that  during  the  decade 
the  amount  of  service  rendered  by  the  Express  Companies  has  more  than 
kept  pace  with  the  growth  of  population.  The  index  of  prices  of  Express 
service  is  based  on  very  poor  data  and  hence  the  figures  in  the  last  column 
of  Table  11D  are  not  accurate.  However,  it  seems  probable  that  the  broad 
conclusion  just  stated  accords  with  the  facts. 

Column  F  of  the  table  shows  that  the  relative  share  of  labor  in  the  value 
product  of  the  industry  increased  greatly,  until,  in  1918,  it  absorbed  not 
only  the  entire  value  product  but  also  fourteen  millions  of  dollars  from  the 
assets  which  the  companies  had  accumulated  in  past  years.  This  means 
that  it  was  necessary  to  draw  upon  the  value  products  of  other  industries 
in  order  to  obtain  sufficient  income  to  pay  the  employees  for  the  work 
done  in  carrying  on  the  Express  business.  This  draft  on  other  industries 
was  possible  because  the  Express  Companies  had  in  former  years  accumu- 
lated large  surpluses  mainly  in  the  form  of  investments,  or,  in  other  words, 


146  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

claims  to  assets  employed  in  other  fields.  Stocks  and  bonds  of  outside  cor- 
porations are  examples  of  such  claims.  Such  securities  can,  of  course,  be 
readily  sold  and  the  money  thus  obtained  may  be  used  to  meet  current- 
expenses. 

§  llf.  The  Number  of  Employees 

As  previously  mentioned,  no  record  has  been  found  of  the  number  of 
employees  engaged  in  this  field  of  work,  yet  it  is  essential  for  the  general 
purposes  of  this  study  that  the  number  be  estimated.  The  United  States 
Bureau  of  Labor  Statistics  in  its  bulletins  on  The  Union  Scales  of  Wages 
and  Hours  of  Labor  gives  rates  for  teamsters  in  all  sections  of  the  country. 
The  Interstate  Commerce  Commission,  in  its  Statistics  of  Railways, 
presents  figures  which  enable  one  to  compute  the  average  salaries  for 
office  workers  from  year  to  year.  It  has  been  assumed  that  a  combination 
of  the  rates  for  teamsters  and  office  workers,1  giving  the  former  twice  the 
weight  of  the  latter,  might  represent  fairly  well  the  average  earnings  of 
Express  employees  for  full  time  work.  Before  1913,  only  the  railway  data 
are  available,  hence  the  average  has  been  carried  back  for  earlier  years 
in  proportion  to  the  variations  in  those  figures  only.  The  results  of  this 
computation  are  presented  in  Table  HE. 

The  average  fraction  of  those  employees  attached  to  the  industry  who 
were  at  work  in  the  various  years  has  been  assumed  to  be  very  similar  to 
that  calculated  as  representing  the  railway  workers.  Certain  adjustments 
have  been  made  in  order  to  make  the  fractions  conform  to  the  idea  that 
the  number  of  persons  attached  to  any  industry  normally  tends  to  vary 
along  a  smooth  curve  rather  than  in  an  irregular  fashion.  Table  HE 
shows  the  estimates  which  have  been  arrived  at.  This  completes  the  usual 
list  of  inquiries  in  so  far  as  the  nature  of  the  available  data  will  permit. 

1  Office  workers  include  division  officers,  clerks,  and  station  agents,  masters,  and  employees. 


, 


express  companies 


147 


TABLE  HE 


AN  ESTIMATE  OF  THE  NUMBER  OK  PERSONS  NORMALLY  DEPENDENT 
FOR  A  LIVIN(  I  UP<  )N  EM  PLOYM  ENT  WITH  THE  ENPK 1  ■:>>  COM  PA  N  I  ES 
OF  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

Calendar 
year 

Total  wages 
and  salaries 

paid« 
(Thousands) 

Estimated 
average  an- 
nual full-time 
money  wa<je '> 

Estimated 

average 

number  of 

employees 

actually 

at  work 

B  -  C 

Estimated 

fraction  of 

those  attached 

to  industry 

actually  at 
\vi  >rk  c 

Estimated 

number  of 

employees 

attached  to 

industrv 

D  -i-  E 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

$36,230 
39,238 
42,445 
45.710 
46,774 

43,926 
44,510 
52,345 
64,356 

82,437 

$640 

635 

663 

670 
6S4 

698 

699 
728 
770 
938 

56,609 
61,900 
64,020 
68,224 
68,383 

(53,648 
63,678 

71,902 

v;.579 
87,sm-> 

.963 
.985 
.963 
.9S5 
.968 

.887 

.869 
.94S 
.989 
.  989 

5S,7S4 
62,800 
66,430 

69,263 
70,611 

71,756 

73,277 
75,845 

si.  509 
88,863 

a  See  Table  11C,  Column  B. 

b  For  mode  of  derivation,  see  text. 

c  Derived  by  a  special  study  described  in  Sec.  2d. 


CHAPTER  12 
STREET  AND  ELECTRIC  RAILWAYS 

§  12a.  Census  Data  Available 

The  task  of  estimating  the  value  product  of  the  street  and  electric  rail- 
ways of  the  country  is  made  relatively  easy  by  the  existence  of  three  Cen- 
suses taken  in  1907,  1912,  and  1917  respectively.  These  Censuses  seem 
very  complete  and  give  most  of  the  information  in  the  form  necessary  for 
this  study. 

§  12b.  Share  of  Security  Holders  and  Other  Property  Owners 

In  the  Census  of  Electric  Railways,  the  term  "gross  income"  means  the 
amount  remaining  from  the  entire  income  after  operating  expenses  and 
taxes  have  been  paid.  Since  it  is  evident  that  practically  all  the  value 
product  of  this  industry  must  arise  from  the  activities  of  operating  com- 
panies only,  the  gross  income  of  this  class  of  companies  is  taken  as  a  start- 
ing point.  From  this  sum,  however,  must  be  deducted  a  number  of  items 
before  arriving  at  the  amounts  available  for  disbursement  to  security 
holders  or  as  payment  for  leased  property.  These  items  may  be  enumer- 
ated as  follows: — 

1.  Income  received  as  dividends  or  interest  on  the  bonds  of  other  corpo- 
rations. Such  amounts  must  be  deducted  because,  under  the  plan  of  pro- 
cedure determined  upon,  they  are  counted  in  the  value  product  of  the 
industry  in  which  the  paying  corporation  is  engaged. 

2.  Taxes  and  expenses  of  lessor  street  railway  companies.  These 
amounts  are  deducted  because  they  do  not  go  to  investors  in  street  rail- 
ways. 

3.  Interest  on  unfunded  debt,  This  is  presumably  paid  mostly  to  banks 
and  will  be  considered  in  their  income  when  dealing  with  that  field. 

4.  Miscellaneous  debits.  Items  under  this  head  are  stated  by  the  Cen- 
sus to  consist  mainly  of  taxes  on  securities,  losses  incurred,  etc.  These 
items  evidently  are  deductions  from  the  amounts  going  to  investors  in  the 
street  railway  field. 

Table  12A  shows  the  net  results  of  these  calculations  for  the  Census 
years. 

148 


STREET  AND  ELECTRIC   RAILWAYS 


149 


TABLE  12A 


THE  SHARE  OF  SECURITY  AND  PROPERTY  OWNERS  IX  THE  NET  VALUE 
PRODUCT  OF  THE  STREET  AND  ELECTRIC  RAILWAYS  OF  THE  CON 
TINENTAL  UNITED  STATES  IN  Till.  CENSUS  YEARS 


(Values  in  Thousands  of  Dollars  ) 


a  See  text  for  description. 

b  U.  S.  Census  of  Street  and  Electric  Railways  for  1917,  pp.  13-14. 

c  U.  S.  Census  of  Street  and  Electric  Railways  for  1907,  pp.  123-125;  142. 

d  U.  S.  Census  of  Street  and  Electric  Railways  for  1912,  pp.  236;  245;  250. 

«  U.  S.  Census  of  Street  and  Electric  Railways  for  1917,  pp.  1  I;  7s;  83. 

/The  interest  on  the  unfunded  debt  was  estimated  at  9.9'  '0  of  all  interest,  this  being 
an  average  of  the  percentages  for  1907  and  1917.  The  estimated  amount  for  1912  was 
9,710  thousands  of  dollars. 


The  interpolation  of  the  share  of  entrepreneurs  and  other  property 
owners  for  the  intercensal  years  is  shown  in  Table  12B.  It  is  based  upon 
the  assumption  that  changes  in  the  net  share  are  proportionate  to  changes 
in  the  net  operating  revenue  of  the  companies.  Since  the  two  quantities 
are  so  nearly  identical,  the  error  from  this  assumption  is  certain  to  be 
slight. 

The  figures  for  net  operating  revenue  for  intercensal  years  since  1913 
are  taken  from  the  estimates  made  by  the  Deputy  Public  Service  Com- 
missioner of  New  York.  These  estimates  are  said  to  have  been  made  after 
extensive  investigation.  For  the  years  1909  to  1913  inclusive,  he  presents 
no  information;  hence  use  has  been  made  of  a  compilation  of  the  data 
shown  in  the  annual  reports  of  a  number  of  the  leading  street  railways 
of  the  United  States. 

It  is  believed  that  the  final  estimates  derived  in  the  manner  just  stated 
are  close  to  the  truth  and  are  sufficiently  accurate  for  all  practical  pur- 
poses.   The  figures  appear  in  Table  12B. 


150 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  12B 


THE  ESTIMATED  AGGREGATE  OF  THE  INTEREST,  RENT,  DIVIDENDS, 
AND  SAVINGS  OF  THE  STREET  AND  ELECTRIC  RAILWAYS  OF  THE 
CONTINENTAL  UNITED  STATES 


(Values  in  Thousands  of  Dollars) 


A 

B 

C 

Interest, 
divi- 
dends. 
and  sur- 
plus of 
28  typi- 
cal com- 
panies b 

$45,855 

52,189 

55,310 
58,150 
61,430 

D 

E 

F 

G 

Ratio  of 
F  toE 

H 

Year 

Net 
operating 

revenue 
of  all 
com- 
panies; 
census 
figures  a 

Ratio  of 
B  toC 

Estimated 

net 

operating 

revenue 

BX  D 

Sum  of 

interest 

dividends 

rent  and 

surplus; 

Census 

years / 

Estimated 
sum  of  in- 
terest 
dividends 
rent  and 
surplus 
EX  G 

1907. .  .  . 

1909. .  .  . 
1910..  . . 
1911..  .. 
1912. .  . . 
1913..  .. 

1914..  . . 

1916..  . . 
1917..  . . 
1918. .  . . 

$166,879 
234,615 

257,230 

3.639c 

3.71.V 
3.748d 
3 . 785  d 
3.819c 

$166,879  a 

193,900 
207,300 
220,100 
234,615  « 
239,138  c 

243,661 e 
248,185  « 
252,707  c 
257,230  a 
155,669* 

$132,138 
188,885 

2)5,159 

.792  c 

.799? 
.801? 
.8049 
.805  c 
.805fl 

.804ff 

.802(7 
.803!/ 
.793  c 
.791'/ 

$132,138/ 

154,800 

166,100 

177,000 

18S.885/ 

192,400 

195,900 

199,100 

202,100 

205,159/ 

123,630 

a  U.  S.  Census  of  Street  and  Electric  Railways,  for  1917,  pp.  13-14. 
b  Computed  from  data  appearing  in  Poor's  and  Moody's  Manual  of  Statistics. 
c  Computed. 

d  Interpolated  along  a  straight  line. 

e  Estimated  by  Alfred  M.  Barrett,  Public  Service  Commissioner  of  New  York.    See 
Annalist,  Jan.  5,  1920,  p.  22. 
/See  Table  12 A. 
g  Read  from  a  smooth  curve. 

§  12c.  Share  of  the  Employees 

The  Census  reports  separately  wages  and  salaries  for  the  different 
Census  years,  but  it  is  stated  that  the  distinctions  between  the  two  have 
perhaps  changed  somewhat  and  hence  are  of  little  value.  For  this  reason, 
both  are  here  combined.  Since  data  for  the  intercensal  years  1909,  1910, 
and  1911  are  unavailable,  estimates  for  those  years  have  been  made  on 
the  assumption  that  wages  have  varied  along  a  smooth  curve.  In  an  indus- 
try as  stable  as  that  of  street  railways,  and  in  a  period  characterized  by 
no  radical  changes,  this  method  should  be  fairly  accurate.  For  the  later 
years,  the  estimates  of  wages  used  are  those  furnished  by  Public  Service 
Commissioner  Barrett,  and  by  the  statistician  of  the  American  Electric 
Railway  Association.    Table  12C  sets  forth  the  evidence  as  it  appears. 


STREET  AND   ELECTRIC    RAILWAYS 


151 


TABLE  12C 


THE  ESTIMATED  DIVISION  OF  THE  VALUE   PRODUCT  OF  THE  STREET 
AND  ELECTRIC  RAILWAYS  OF  THE  CONTINENTAL  EXITED  STATES 


(Values  in  Thousands  of  Dollars) 


Per  cent  of 

Wages  and 

salaries  paid 

Rents,  interest, 

Total  value 

value  product 

Year 

dividends, 
and  surplus  A 

product  of 
industry » 

going  to 
employees,  as 

wages  and  salaries 

1907 

$150,991  a 

$132,138 

283,129 

53.3 

1909 

170,900/ 

154,800 

325,700 

52.5 

1910 

180,960/ 

166,100 

347,060 

52.1 

1911 

191,400/ 

177,001) 

368,400 

52 . 0 

1912 

200,891  a 

188,885 

3S9.776 

51.5 

1913 

213,950  a 

192,400 

406,350 

52.7 

1914 

223,930  cb 

195,900 

419,830 

53.3 

1915 

222,220  cb 

199,100 

421,320 

52.7 

1916 

242,250* 

202,100 

444,350 

54.5 

1917 

267,240  a 

205,159 

172,399 

56.6 

1918 

313,749  c 

123,600 

137,349 

71.7 

a  U.  S.  Census  of  Street  ami  Ehclrir  Railu-n/s  for  1917,  p.   13. 

b  Estimated  from  Aera,  on  basis  of   percentage  change  in  cost  of  conducting  trans- 
portation. 

c  Aera,  Mar.  1917,  p.  925. 

d  Aera,  Mar.  1918,  p.  795. 

e  Estimated. in  Aera,  Aug.  1919,  pp.  47-52. 

/  Interpolated  along  a  smooth  curve 

a  Assumed  to  varv  in   proportion  to  operating  expenses:  see  Barrett,   Alfred  M., 
Annalist,  Jan.  5,  1920,  p.  22. 

h  See  Table  12B. 

*  Sum  of  two  preceding  columns. 


§  12d.  Corporate  Savings 

Table  12C  shows  that,  at  the  close  of  the  period  studied,  there  was  a 
great  increase  in  the  share  of  the  employees  as  contra  ited  with  ;i  sharp 
contraction  in  the  share  of  property.  As  a  rule,  the  corporate  owners 
reserve  a  certain  proportion  of  earnings  as  savings  or  "surplus."  In  l'.HS. 
however,  the  surplus  disappeared  and  part  of  the  distribution  to  stock 
and  bond  holders  was  made  out  of  previous  savings. 

The  estimates  of  the  surplus  for  other  years  than  those  covered  by  the 
Census  are  interpolated  on  the  basis  of  the  reported  surpluses  of  the 
twenty-eight  representative  companies  previously  mentioned  and  of  the 
estimates  of  Public  Service  Commissioner  Barrett.  The  figures  appear  in 
Table  12D. 

They  show  that  the  percentage  of  corporate1  earnings  saved  fell  sharply 
after  1911,  but  that  about  one-twentieth  of  the  income  was  saved  up  to 


152 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


1918,  when  a  deficit  occurred  about  equal  to  the  savings  of  a  normal  year 
in  the  decade. 

TABLE  12D 

THE  ESTIMATED  CORPORATE  SAVINGS  OF  THE  STREET  AND  ELECTRIC 
RAILWAY  COMPANIES  OF  THE  CONTINENTAL  UNITED  STATES 

(Values  in  Thousands  of  Dollars) 


A 

B 

C 

D 

E 

F 

G 

Year 

Surplus  of 
all  com- 
panies in 
census 
years  a 

Surplus  of 
28  typical 
companies  b 

Ratio  of 
B  toC 

Estimated 
savings  of 
all  com- 
panies 
CXD 

Total 
share  of 
entre- 
preneurs 

and 
property  / 

Per  cent  of 
share  of  en- 
trepreneurs 
and  prop- 
erty owners 
saved 
by  corpo- 
rations, as 
surplus 
E  -S--F 

1907 .  .  . 

1909 .  .  . 
1910 
1911. . . 
1912. .  . 
1913. .  . 

1914. .  . 

1915.  .  . 

1916.  .  . 

1917.  .  . 

1918.  .  . 

$14,303 
16,663 

8,506 

$7,038 

7,261 
8,968 
9,117 
9,550 
6,392 

2.032c 

1 . 920  d 
1  861  d 
1.801d 
1   745  c 
1.686** 

814,303  a 

13,940 
16,690 
16.420 
16,663  a 
10,770 

13,300  e 

11,700  « 

10,000  e 

8,506  o 

-12,100  « 

$132,138 

154,800 
166,100 
177,000 

iss.ssr, 
192,403 

195,900 
199,100 
202,100 
2D5.159 
123,600 

10.8 

9.0 
10.0 
9.3 
8.8 
5.6 

6.8 
5.9 
4.9 
4.1 

—9.8 

a  U.  S.  Census  of  Street  and  Electric  Railways,  1917,  p.  14. 
b  Compiled  from  Poor's  and  Moody's  Manuals. 
c  Computed. 

d  Interpolated  along  a  straight  line. 

f  Adjusted  slightly  to  include  surplus  of  lessor  companies,  but  primarily  the  estimates 
of  Alfred  M.  Barrett,  in  the  Annalist,  Jan.  5,  1920,  p.  22. 
/  See  Table  12B. 


§  12e.  Average  Annual  Earning  of  Employees 

The  next  question  of  interest  is  whether  the  average  annual  earnings  of 
the  employees  attached  to  the  industry  are,  in  general,  growing  larger  or 
smaller  as  the  years  pass.  Since  the  purchasing  power  of  the  dollar  has 
changed  so  greatly  during  the  decade,  it  is  also  essential  that  the  nominal 
money  wage  received  by  the  average  employee  attached  to  the  industry  be 
divided  by  a  suitable  price  index  in  order  to  ascertain  the  relative  amount^ 
which  the  various  money  payments  would  purchase  on  the  dates  when  they 
were  made.    These  two  processes  have  been  carried  out  in  Table  12E. 


S 


STREET  AND   ELECTRIC   RAILWAYS 


153 


TABLE  12E 


THE  AVERAGE  NUMBER  OF  KLECTRIC  RAILWAY  EMPLOYEES  AND  THE 
AVERAGE  ANNUAL  PAY  WHICH  THEY  RECEIVE  FROM  THE  EMPLOY- 
ING COMPANIES 


A 

B 

C 

D 

E 

F 

G 

II 

Year 

Estimated 

average 

number  of 

employees 

actually 

at  work/ 

1  Istimated 
fraction  of 
full  time 
worked  on 
the  average'' 

Estimated 
number  of 
employees 
at  taehed  to 
industry 
B-HC 

Estimated 
total  wa  ■ 
ami  salaries  " 
(Thousands) 

Average 

money 
earnings 
per  year '' 

EvD 

Average 
price  index 

of  goods 
consumed 

by  manual 

and  clerical 

workers  e 

Purchasing 

power  of 

annual 

earnings  at 

prices  oi 

1913 

F-hG 

1907 

1909 
1910 
1911 
1912 
1913 

1914 
1915 
1916 
1917 
1918 

221,429(7 

251,800/ 
266,100/ 
273,600/ 
282,461  a 
284,100/ 

278,200  / 
276,000  / 
292,300  / 
294,826  o 
292,400/ 

.987 

.968 
.977 
.970 
.978 
.971 

.  942 
.929 
.982 
.986 
.977 

224,300  b 

260,000  c 
272,200  e 
282,000  e 
289,000  6 
292,500  c 

295,000  e 
296,700  c 
298,000  c 
299,0006 

299,700  c 

SI  70,900 
180,960 
1!  11, 400 
200,891 
213,950 

223,930 
222,220 
242,250 

2i  '.7, 2  J  n 
313,749 

S657 
665 

679 
695 
731 

759 

749 
813 

VI  1 

1047 

95  5 

97  8 

98  1 

99  1 
100. 

101. 
103. 

110. 
129. 

i:.s 

$688 
680 

690 
699 

731 

751 
727 
739 
693 
663 

a  See  Table  12C. 
b  Equals  B  -=-  C. 
c  Read  from  a  smooth  curve. 
d  Derived  by  means  of  a  special  study;  se  s  §  2d. 

e  Bureau  of  Labor  index  for  middle  of  year,  c  intinued  back  from  1913  to  1999  by 
special  investigation  by  this  Bureau;  see  Table  2C. 
/  Equals  C  X  D. 
o  U.  S.  Census  of  Electric  Railways,  1917,  p.  13. 


The  fractions  which  have  been  estimated  as  representing  the  propor- 
tions of  those  normally  employed,  who  are  at  work,  are  based  upon  rather 
slender  evidence.  Probably,  however,  they  do  not  diverge  far  from  the 
truth.    Their  derivation  is  described  in  Chapter  2. 

The  results  of  the  computations  recorded  in  Table  12E  show  a  distinct 
increase  in  the  purchasing  power  of  earnings  during  the  first  half  of  the 
decade  and  an  equally  distinct  decline  from  1914  to  1918.  The  conclu- 
sion must  be  that,  during  the  latter  period,  either  the  employee-  grew 
worse  off  economically,  or  else  there  was  a  lowering  in  the  grade  of  labor 
employed. 

§  12f.  Purchasing  Power  of  Share  of  Security  Holders  and  Property 

Owners 

It  seems  probable,  then,  that  the  employees  were  not  quite  as  well  off  in 
1918  as  in  1909,  but  how  about  the  investors?    Owing  to  the  variations  in 


154 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


the  price  level,  a  mere  statement  of  the  number  of  dollars  which  the  latter 
received  throws  but  little  light  upon  the  question.  It  is  essential  that  the 
amounts  in  money  be  reduced  to  a  basis  of  purchasing  power,  if  an  intelli- 
gent answer  is  to  be  given.  This  has  been  done  in  Table  12F.  The  price 
index  used  for  the  correction  represents  approximately  the  changes  in  the 
value  of  consumption  goods  used  by  the  wealthy,  since  the  majority  of  the 
stock  in  most  corporations  is  held  by  persons  having  large  incomes. 

TABLE  12F 


THE  PURCHASING  POWER  OF  THE  BUSINESS  SAVINGS  AND  OF  THE 
DISBURSEMENTS  MADE  TO  THE  PROPERTY  OWNERS  FROM  THE 
NET  VALUE  PRODUCT  OF  THE  STREET  AND  ELECTRIC  RAILWAY 
INDUSTRY 


(Values  in  Thousands  of  Dollars) 


Corporate  savings 

Bond  interest,  dividends,  and  rent 

Year 

Actual 
value  b 

Index  of 
construc- 
tion costs  a 

Value  at 

prices  of 

1913  « 

Actual 

amount 

paidc 

Index  of 

prices  of 

articles  used 

by  families 

spending 

$25,000 

annually  d 

Value  at 

prices  of 

1913  e 

1909  .  . 

1910  .  . 

1911  . 

1912  .  . 

1913  . 

1914  .  . 

1915  .  . 

1916  .. 

1917  .. 

1918  .  . 

$13,940 
16,690 
16,420 
16,663 
10,770 

13,300 

11,700 

10,000 

8,506 

—12,100 

.927 
.953 
.945 
.983 
1.000 

.960 

.992 

1.194 

1.473 

1.499 

$15,038 
17,513 
17,376 
16,951 
10,770 

13,852 

11,794 

8,375 

5,775 

-8,067 

$140,860 
149,410 
160,580 
172,222 
181,630 

182,600 
187,400 
192,100 
196,653 
135,700 

.973 

.988 

.995 

1.000 

1.000 

1.010 
.996 
1.074 
1.198 
1.364 

$144,769 
151,225 
161,387 
172,222 
181,630 

ISO,  792 
188,152 
178,864 
164,151 
99,487 

a  Data  derived  from  reports  of  the  United  States  Bureau  of  Labor  Statistics.    Weights 
used:  Building  labor  3,  metals  and  implements  2,  building  materials  1. 
b  See  Table  12D. 

c  Entire  share  of  propertied  classes  less  corporate  savings;  see  Table  12B. 
d  Derived  by  a  special  study;  see  Table  2E. 
e  Obtained  by  dividing  the  money  values  by  the  price  index. 

Table  12F  shows  how  very  sharp  has  been  the  fall  in  the  purchasing 
power  of  the  income  of  the  investors  in  street  railways.  Much  more  calcu- 
lation is  necessary  to  ascertain  the  decline  in  the  real  earnings  per  dollar 
invested.  However,  it  seems  quite  certain  that  the  investment  has  been 
all  the  time  increasing  rather  than  diminishing;  hence  it  is  evident,  that 
from  1910  to  1918,  street  railway  securities  were  constantly  giving  poorer 
and  poorer  returns  on  the  investment. 


STREET  AND  ELECTRIC    RAILWAYS 


155 


§  12g.  The  Average  Output  per  Employee 

Another  query  of  interest  is  whether  the  output  per  employee  has  been 
increasing  or  diminishing  during  the  decade  under  discussion.  An  increase 
in  output  might  he  due  either  to  greater  efficiency  in  management,  better 
equipment,  or  greater  skill  or  effort  on  the  part  of  the  employees.  At 
present,  only  the  facts  and  not  the  causes  will  be  considered.  The  best 
measure  of  output  is  believed  to  be  the  car  mile,  which  also  seems  to  repre- 
sent the  best  criterion  of  service  rendered  by  the  company.  Cars  have 
changed  only  moderately  in  size  during  the  decade  under  discussion  but 
there  has  apparently  been  some  increase  in  capacity  and  it  is  not  certain 
that  the  number  of  passengers  crowded  into  a  car  may  not  have  varied 
greatly.  No  record  of  seat  miles  is  obtainable;  hence  the  car  mile  is  used 
as  the  nearest  approximation  to  this  ideal  measure  of  service  rendered. 
Table  12G  shows  roughly  the  facts  both  as  to  service  per  employee  and 
service  rendered  per  capita  for  the  population  of  the  Continental  United 
States. 

TABLE  12G 

THE  ESTIMATED  NUMBER  OF  REVENUE  CAR  MILES  PER  EMPLOYEE 
AND  PER  CAPITA  FOR  THE  STREET  AND  ELECTRIC  RAILWAYS  OF 
THE  CONTINENTAL  UNITED  STATES 


Year 

Revenue  car 

miles 
(Thousands) 

1,617,731a 

Number  of 

employees 
actually 

at  work/ 

Revenue  car 
miles  per 
employee 

Population  of 

Continental 

Unit <-i  1  States  ■> 

(Thousands) 

87,321  « 

Revenue  car 

miles  per 

inhabitant 

of  the 

United  States 

1907 

221,429 

7,303 

IS.  53 

1909 

1,725,000  b 

251,800 

6,851 

90,370 

19.09 

1910 

1,785,0006 

266,100 

6,708 

92,229 

19.35 

1911 

1,845,000  6 

273,600 

6,743 

93,811 

19.67 

1912 

1,921,620  a 

282,461 

6,803 

95,338 

20.16 

1913 

_'.il()0,0006 

28  1.100 

7,040 

97,278 

20.56 

1914 

2,068,000  c 

278,200 

7.!:'.! 

99,194 

20.85 

1915 

2,022,00  1 

276,000 

7,326 

100,428 

20  13 

1916 

2,1 10,000  d 

292,300 

7,219 

101,722 

20  7  1 

1917 

2,139,802  a 

294,826 

7,258 

103,059 

20  76 

1918 

2,051,356 ' 

292,400 

7,013 

104,182 

r.i  69 

a  Census  of  Electric  Railways,  1017,  pp.  12-13. 

6  Roughly  estimated  by  aid  of  a  smooth  curve. 

c  Estimated  from  tallies  in  Aera,  March,  1917,  p.  925. 

d  Estimated  from  tables  in  Aera,  March,  1918,  p.  796. 

e  Estimated  from  records  of  345  companies;  see  Aera,  Aug   1919,  p.  17. 

/See  Table  L2E. 

g  Figures  derived  from  a  special  study;  see  §  2a. 

'  Statistical  Abstract  of  the  U.  S.,  1918,  p.  776. 


156  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

Tabic  12G  indicates  that  the  output  per  employee  declined  noticeably 
from  1907  to  1910,  that,  after  that  date,  it  varied  irregularly,  but  in 
most  years  did  not  differ  greatly  from  the  1907  rate.  Since  cars  have 
probably  increased  somewhat  in  size  it  is  not  unlikely  that  the  passenger 
miles  per  employee  were  greater  in  number  in  1918  than  in  1907.  As  to 
the  effort  involved  in  moving  a  car  a  mile,  it  may  be  noted  that  it  has  been 
affected  by  several  varying  forces.  Larger  cars  require  more  work  in 
collecting  fares  but  improved  devices  lessen  the  physical  work  of  manipu- 
lating the  machinery.  The  car  mile  may  then  perhaps  be  a  fairly  satis- 
factory gauge  of  work  performed,  even  though  conditions  have  changed 
somewhat  during  the  period  studied. 

§  12h.  Relative  Growths  of  Street  Car  Service  and  National  Population 

The  last  column  of  the  table  shows  that  up  to  1914  street  railway  ser- 
vice was  growing  faster  than  population  but  that  since  that  date  the  two 
rates  of  growth  have  been  about  equal,  with  an  actual  decline  occurring  in 
1918  in  the  car  mileage  per  capita.  This  change  in  the  amount  of  service 
per  person  in  the  United  States  has  doubtless  been  the  result  of  several 
independent  forces  acting  simultaneously.  The  chief  force  tending  to  send 
the  per  capita  amount  of  service  upward  is  the  relatively  rapid  growth 
of  the  urban  as  compared  to  the  rural  population.  This  tends  to  increase 
the  average  street  car  patronage  among  the  general  population,  for,  as 
cities  grow  larger,  not  only  must  a  larger  percentage  of  their  inhabitants 
ride  to  work,  but  also  each  person  who  rides  must,  on  the  average,  travel 
more  miles  to  reach  the  business  district. 

Two  forces  acting  in  the  opposite  direction  which  have  been  especially 
potent  in  restricting  traffic  since  1914  are  the  increase  in  the  automobile- 
owning  percentage  of  the  population  and  the  competition  of  automobile 
busses  with  the  street  railways.  During  the  period  since  1917,  the  growth 
of  street  railway  traffic  has  been  further  hampered  by  the  fact  that  exten- 
sions could  not  readily  be  financed  because  of  low  net  income  arising  from 
fixed  rates  of  fare  and  higher  costs  of  operation.  In  1918,  a  further  re- 
stricting factor  of  some  moment  was  the  difficulty  of  obtaining  sufficient 
employees  to  keep  the  service  in  full  operation. 

Despite  the  decline  in  service  occurring  at  the  close  of  the  recorded 
period,  it  seems  probable  that  the  car  mileage  per  capita  may  again 
increase  at  a  rate  similar  to  that  prevailing  before  1915.  The  actual  in- 
crease during  the  decade  in  service  is  probably  slightly  greater  than  the 
figures  show,  for  it  is  presumably  true  that  the  average  seating  capacity 
of  cars  has  grown  somewhat  in  the  interim. 


S 


CHAPTER  13 
PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES 

§  13a.  The  Census  Data 

The  Census  Bureau  secures  records  from  electric  light  and  power  com- 
panies at  five  year  intervals.  Censuses  were  taken  in  1907,  1912,  and  1917. l 
This  spacing  of  time  is  such  that  estimates  for  each  year  of  the  period  under 
consideration  can  be  made  with  a  reasonable  degree  of  accuracy.  The 
Census  data,  of  course,  were  not  collect ed  with  a  view  to  answering  the 
questions  brought  forward  in  our  particular  inquiry  and  hence  are  not 
entirely  adapted  to  our  needs.  It  is  believed,  however,  that  the  official 
figures  afford  a  basis  for  estimates  that  serve  the  present  purpose  fairly 
well. 

The  methods  of  interpolation  used,  of  course,  give  only  approximation-: 
but,  owing  to  the  advantageous  location  of  the  Census  dates,  it  is  not 
likely  that  they  have  given  rise  to  errors  of  any  moment. 

There  are  doubtless  certain  inaccuracies  in  the  amounts  recorded  for 
the  Census  years  themselves.  For  example,  some  rent  and  some  interest 
on  short  time  loans  are  doubtless  paid  to  individuals,  and  employees 
receive  some  recompense  for  injuries.  Presumably,  however,  all  of  these 
amounts  are  quite  small.  On  the  whole,  it  is  believed  that  the  figures 
shown  in  the  study  approximate  the  facts  rather  closely. 

The  way  in  which  the  Census  figures  have  been  used  is  shown  in  Tabic 
13  A. 

Certain  explanations  are  necessary  concerning  the  nature  of  some  of  the 
items  in  Table  13A.  For  the  reasons  stated  in  Section  9b,  income  received 
as  interest  or  dividends  from  other  companies  is  not  included  in  the  value 
product  of  this  industry.  The  income  from  operations  less  expense's 
should  give  the  gain  which  is  to  be  distributed  among  the  owners  of  the 
plants.  Interest  paid  to  bondholders  is  included  among  "Expenses." 
To  arrive  at  the  gains  of  all  investors,  this  item  should  be  added  to  the 
dividends  paid  from  operating  receipts. 

The  Census  records  small  payments  for  damages  and  legal  expenses. 
Evidently,  money  paid  for  land-  flooded  or  property  destroyed  represents 

'Professor  Edniond  E.  Lincoln  of  Harvard  University,  who  has  turn  in  charge  of  this 
part  of  the  Census,  has  kindly  criticised  the  results  here  presented.  While  he  cannot  be 
held  responsible  for  the  estimates  given,  bis  suggestions  were  must  helpful  and  the  report 
has  been  materially  improved  by  their  incorporation. 

157 


158 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

TABLE  13A 


THE  CENSUS  FIGURES  FOR  THE  ITEMS  COMPOSING  THE  NET  VALUE 
PRODUCT  OF  PRIVATE  ELECTRIC  LIGHT  AND  POWER  PLANTS  IN 
THE  CONTINENTAL  UNITED  STATES 


Millions  of  dollars 

Item 

Census  of 

1907 

1912 

1917 

Gross  Income  from  Operation 

Total  Expenses  d 

$159.7  a 

123.0* 

$274 . 0  b 
216.0/ 

$477 . 8  c 
391. Off 

Net  Profits  from  Operation 

$  36.7 

$  58.0 

$  86.8" 

Payments  to  Employees:' 

$21.2'' 
10.7'' 

$33 . 0 '' 
22 . 6  >* 

$52  0^ 

34.4'' 

Total 

Payments  to  Investors :  i 
Interest  on  Funded  Debt. . 

$31.9 

26.8* 

$55.6 

$58.0 
40.5' 

$86.4 

$86.9 
61.0  m 

Total 

$63 . 5 

$98 . 5 

$147.9 

Total  Value  Product  of  Industry.  .  .  . 

$95.4 

$154.1 

$234.3 

Per  cent  of  Value  Product  Received 
by  Employees 

33.4 

36.1 

36.9 

«  U.  S.  Census  of  Central  Electric  Light,  and  Power  Stations,  1907,  p.  159.  In  1912 
33.4  per  cent  of  "All  Other  Income"  was  from  investments.  The  same  percentage  (or 
$1,880,000),  has  been  deducted  in  1907. 

b  U.  S.  Census  of  Central  Elec.  Light  and  Power  Stations,  1912,  p.  89. 

c  U.  S.  Census  of  Central  Elec.  Light  and  Power  Stations,  1917,  p.  155;  interest  and 
dividends  from  investments  excluded. 

d  Excludes  sinking  and  reserve  funds. 

«  In  1912,  sinking  and  reserve  funds  constituted  1.69  per  cent  of  miscellaneous  ex- 
penses, hence  1.69  per  cent  of  the  1907  miscellaneous  expenses,  or  $834,000  have  been 
deducted. 

/  U.  S.  Census  of  Central  Elec.  Light  and  Power  Stations,  1912,  p.  95. 

o  U.  S.  Census  of  Central  Elec.  Light  and  Power  Stations,  1917,  pp.  160-161. 

h  U.  S.  Census  of  Central  Elec.  Light  and  Power  Stations,  1917,  p.  120. 

*  There  should  be  included  here  any  amounts  paid  to  employees  as  compensation  for 
injuries.  Professor  Edmond  E.  Lincoln,  special  statistician  for  the  Census  Bureau  in 
this  line,  assures  us  that  this  amount  is  less  than  $100,000;  hence  no  entry  has  been 
made. 

i  No  item  is  entered  under  this  head  for  rents  because  Professor  Lincoln  states  that 
the  amount  of  rent  going  to  individuals  is  "wholly  negligible"  practically  all  being  paid 
"for  stations,  equipment  of  various  kinds,  use  of  lines  and  conduits,  water  privilege, 
etc." 

k  United  Slates  Census  of  Elec.  Light  and  Power  Stations,  1907,  p.  61. 

'4.5%  on  funded  debt,  the  rate  being  estimated  from  the  U.  S.  Census  of  Central 
Electric  Light  and  Power  Stations  for  1917,  pp.  103  and  115. 

m  4.7%  on  funded  debt,  the  rate  being  estimated  from  the  references  cited  under 


"  Fraction  over  A. 


<* 


PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES         159 

no  net  gain  and  therefore  adds  nothing  to  private  revenues.  Some  dam- 
ages doubtless  are  paid  to  injured  employees,  but  the  amount  is  stated 
by  authority  to  be  negligible. 

By  the  process  just  described,  it  is  believed  that,  for  the  Census  years, 
the  respective  shares  of  the  value  product  of  the  industry  going  to  the 
persons  working  for  hire  and  to  the  persons  who  take  the  risk  and  expect 
to  secure  remuneration  for  the  investment  of  their  efforts  or  property 
from  the  residuum  of  the  net  receipts  have  been  fairly  well  differentiated. 
If  the  share  of  the  employees  is  divided  by  the  total  value  product  of  the 
industry  and  the  quotient  is  multiplied  by  100,  the  resulting  product  repre- 
sents the  approximate  percentage  of  the  value  product  going  to  the  em- 
ployees,— a  group  that,  by  contract,  holds  the  primary  claim  against  the 
net  product  of  the  enterprise. 

§  13b.  The  Net  Value  Product  and  Its  Distribution 

Table  13A  completes  the  inquiry  for  the  Census  years,  but,  under  the 
plan  of  campaign  determined  upon,  it  is  necessary  to  estimate  the  value 
product  and  its  distribution  for  each  year  from  1909  to  1918.  Some  basis 
of  interpolation  is  therefore  essential.  The  criteria  depended  upon  for 
this  purpose  are  derived  from  the  annual  reports  of  19  typical  electric 
light  and  power  companies  as  quoted  in  Moody's  Manual.  The  respec- 
tive totals  of  net  earnings,  operating  expenses,  interest  on  funded  debt, 
dividends,  and  corporate  surplus  have  been  calculated  for  each  year  from 
1907  to  1918  for  the  entire  group  of  corporations  and  are  recorded  in  Tables 
13B  and  13C. 

It  is  assumed  that  the  ratio  of  profits  of  all  concerns  to  the  net  earnings 
of  the  19  typical  corporations  is  a  relatively  stable  quantity  and  that  its 
changes  can  therefore,  be  well  depicted  by  a  smooth  curve  determined  by 
the  ratios  for  1907,  1912  and  1917.  Similarly  it  is  assumed  that  the  respec- 
tive ratios  of  salaries  and  wages  paid  by  all  plants  to  the  total  operating 
expenses  of  the  19  selected  corporations  are  relatively  fixed,  varying  along  a 
smooth  curve  rather  than  oscillating  violently,  and  that  the  same  holds 
true  of  the  ratio  of  bond  interest  paid  by  all  concerns  to  the  interest  on  the 
funded  debt  reported  by  the  -ample  corporations.  The  treatment  of  the 
data  according  to  these  assumptions  yields  the  results  set  forth  in  Tables 
13B,  13C,  and  13D. 


160 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  13B 


AN    ESTIMATE  OF   THE  TOTAL  NET  PROFITS    OF  PRIVATE  ELECTRIC 
LIGHT    AND     POWER     PLANTS     IN     THE     CONTINENTAL     UNITED 

STATES 


A 

B 

C 

D 

Ratio  of  total 

E 

Total  net 

Total  net  profit 

Estimated  d  net 

earnings  of  19 

of  all  private 

net  profits  to 

profit  of  all 

Year 

typical  electric 

plants  as  shown 

net  earnings  of 

private  plants 

companies  <* 

by  Census  d 

typical 

BX  D 

(Thousands) 

(Thousands) 

companies 

(Thousands) 

1907 

$15,652 

$36,704 

2 . 345  b 

$35,704 

1909 

18,438 

2.310c 

42,600 

1910 

21,422 

2.303c 

49,330 

1911 

23,023 

2 . 300  c 

52,950 

1912 

25,293 

58,046 

2.2956 

58,046 

1913 

26,884 

2.322c 

62,420 

1914 

27,747 

2 . 362  c 

65,550 

1915 

31,154 

2.420c 

75,400 

1916 

34,585 

2.489  c 

86,100 

1917 

33,798 

86,857 

2.570  6 

86,857 

1918 

33,898 

2 . 655  c 

90,000 

a  Compiled  from  various  numbers  of  Moody's  Manual  of  Corporation  Securities. 

b  Computed  by  division. 

c  Interpolated  along  a  smooth  curve. 

d  For  references,  see  Table  13A. 


^ 


PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES       1(31 


TABLE  13C 


AN  ESTIMATE  OF  SALARIES  AND  WAGES  PAID  BY  PRIVATE  ELECTRIC 
LIGHT  AND  POWER  COMPANIES  IN  THE  INTERCENSAL  YEARS 


Total  op- 

Salaries 

Ratio  of 

Estimated 

Wages 

Ratio  of 

Estimated 

erating  ex- 

paid by 

salaries 

total 

paid  by 

wages 

total 

penses  of 

all  plants 

paid  by 

salaries 

all  plan!  - 

paid  by  all 

wages 

Year 

19  typical 

(Census 

all  plants 

paid  by  .-ill 

(Census 

plants  to 

paid  by 

electric 

figures  d) 

to  expenses 

plants e 

figures  d) 

expenses 

all  plants  '■ 

companies  "■ 

(Thou- 

of typical 

(Thou- 

(Thou- 

of typical 

(Thou- 

(Thousands) 

sands) 

companies 

sands) 

sands) 

companies 

sands) 

1937. . . 

$23,571 

$10,739 

.  456  b 

$10,739  ^ 

$21,19o 

.899  6 

$21,196^ 

1939. .. 

27,740 

.541c 

15,000 

893  c 

24,850 

1910. .  . 

31,734 

.574  c 

18,220 

892  c 

28,300 

1911.  .  . 

33,571 

.596  c 

20,000 

.883  c 

29,800 

1912. .  . 

37,338 

22,637 

.606  6 

2_\f>37<' 

33,021 

.8846 

33,021  d 

1913. 

39,804 

.602  c 

23,980 

.878  c 

31,940 

1914... 

42,458 

.593<- 

25,190 

.  S  17  e 

:;  »,800 

1915. .  . 

44,078 

.582  c 

25,660 

.858c 

37,800 

1916... 

50,615 

.562  c 

28,460 

842« 

12,600 

1917..  . 

62,825 

34,439 

.548  6 

34,439  d 

52,035 

s  1  >  b 

52,035  d 

1918... 

72,220 

525  c 

37,970 

.811c 

58,550 

a  Compiled  from  various  numbers  of  Moody's  Manu  d  of  Corporation  S   •  iriti  ■ 

6  Computed. 

c  Interpolated  along  a  smooth  curve. 

d  See  Table  13A  for  references. 

e  Operating  expenses  of  typical  companies  multiplied  by  the  appropriate  ratio. 


162 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  13D 


AN  ESTIMATE  OF  THE  PAYMENTS  OF  BOND  INTEREST  MADE  BY 
PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES  IN  THE  IN- 
TERCENSAL  YEARS 


A 

B 

C 

D 

E 

Year 

Index  of 
interest  on 
funded  debt 
paid  by  15  re- 
porting cor- 
porations a 

Bond  interest 

paid  by  all 

plants.     (Census 

figures  b) 

(Thousands) 

Ratio  of  C 
to  B 

Estimated  bond 

interest  paid 

by  all  plants 

(Thousands) 

BXD 

1907 

1909. .  . 

20,692 

20,038 
22,096 
23,965 
24,520 
25,415 

24,675 
27,055 
29,350 
30,000 
33,382 

$26,842 
40,450 

01,000 

1 . 297  e 

1.432d 
1.503^ 
1 . 575  d 
1.650c 
1 . 724  d 

1.800 d 

1 . 880  d 
1 . 957  d 
2.033c 
2.108^ 

$26,842 

28,705 
33,218 
37,757 
40,450 
43,816 

44,415 
50,861 
57,453 
61,000 

1910 

1911. . .  . 

1912. . 

1913. 

1914 

1915 

1916..  . 

1917.. 

1918 

70,368 

a  Compiled  from  various  numbers  of  Poor's  and  Moody's  Manual  of  Public  Utilities. 

b  For  references,  see  Table  13A. 

c  Computed  by  division. 

d  Read  from  a  smooth  curve. 

It  is  of  interest  to  note  the  fact  that  the  industry  shows  an  unusually 
steady  increase  in  all  lines  throughout  the  decade.  Profits,  wages,  and 
bond  interest  have  each  nearly  trebled.  No  violent  fluctuation  appeared 
anywhere. 

The  next  step  in  the  usual  procedure  followed  in  these  studies  is  to 
divide  the  total  share  of  entrepreneurs  and  property  owners  into  two  parts ; 
namely,  disbursements,  and  business  savings.  This  apportionment  has 
been  based  upon  the  proportionate  division  of  the  net  gain  of  the  previously 
mentioned  reporting  corporations  between  dividends  and  corporate  savings. 

The  corporations  were  separated  into  three  classes  based  upon  size. 
Ratios  were  separately  computed  from  the  totals  of  each  class  and  the  arith- 
metic average  of  these  three  ratios  is  the  quantity  here  presented.  This 
method  prevents  the  domination  of  the  results  by  the  large  corporations 
which  probably  form  a  much  larger  proportion  of  the  sample  than  of  the 
industry  as  a  whole. 


** 


PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES        163 


TABLE  13E 


AN  ESTIMATE  OF  THE  TOTAL  DISBURSEMENTS  MADE  TO  THE  STOCK 
AXD  BOND  HOLDERS  BY  PRIVATE  ELECTRIC  LIGHT  AND  POWER 
PLANTS 


A 

B 

C 

D 

E 

F      , 

G 

Calendar 

year 

Xct  profits 
of  all  com- 
panies « 

(Thou- 
sands) 

Fracl  ion  of 
uel  profits 
saved  by 
sample  cor- 
porations 

Savings 

of  all 
concerns 
(Thou- 
sands) 
CXB 

Dividends 
of  all 

concerns 
(Thou- 
sands) 
B  — D 

Bond 

interest 
paid  by  all 
concerns  b 
(Thou- 
sands) 

Total  dis- 
bursements 

ments  to 

stock 
and  bond 
holders 
(Thou- 
sands) 
E  +  F 

1907 

1909 

1910 

1911 
1912 
1913 

1914 

1915 

1916 
1917. 
1918 

$36,704 

42,000 
49,330 
52,950 

58,040 
62,420 

65,550 
75,400 
86,100 
86,857 
90,000 

.5346 

.3072 
.3634 

3251 
.2974 
.3208 

.  1939 
.3064 
.3691 

.  2888 

.225:; 

$19,622 

13,087 
17,925 

17,215 
17,203 
20, 021 

12,710 
23,104 
31,784 
25. 088 
20,282 

$17,082 

29.51:; 
31,405 
35,735 
40,783 
42,396 

52,840 

52.290 
54,316 
61,769 

69,71s 

$26,842 

28,705 

33,218 
37,757 
40,450 
43,816 

11.115 
50,861 
57,453 
61,000 
70,368 

$43,924 

58,21s 
64,623 
73,492 

81.233 
86,212 

97.255 
103,157 
111,769 
122,769 

HO.OSli 

a  See  last  column  of  Table  13B. 
b  See  Table  13D,  Column  E. 

It  is  now  in  order  to  measure  the  purchasing  power  of  that  share  of  the 
total  value  product  of  the  industry  which  was  paid  to  the  stock  and  bond 
holders.     This  is  done  in  Table  13F. 


164 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  13F 


THE  PURCHASING  POWER  OF  THE  SHARE  OF  THE  STOCK  AND  BOND 
HOLDERS  IN  THE  VALUE  PRODUCT  OF  PRIVATE  ELECTRIC  LIGHT 
AND  POWER  PLANTS 


A 

.  B 

C 

D 

E 

F 

G 

Corporate  savings 

Interest  and  dividends  paid 

Calendar 
year 

Thousands 
of  dollars  o 

Index  of 
construc- 
tion costs  b 

Value 
at  prices 
of  1913 
(Thou- 
sands) 
B 

C 

Thousands 
of  dollars  c 

Index  of 

prices  of 

goods  used 

by  the 

wealthier 

classes  d 

Value 
at  prices 
of  1913 
(Thou- 
sands) 
E 

F 

1909 .... 
1910. .  .  . 

1911 

1912 

1913.  .  .  . 

1914 

1915 

1916 

1917 

1918 

$13,087 
17,925 
17,215 
17,263 
20,024 

12,710 
23,104 
31,784 

25,088 
20,282 

.927 
.953 
.945 
.983 
1.000 

1.013 

1 .  002 
1 .  088 
1 .  252 
1.448 

$14,118 
18,809 
18,217 
17,562 
20,024 

12,547 

23,058 
29,213 
20,038 
14,007 

$58,218 
64,623 
73,492 
81,233 
86,212 

97,255 
103,157 
111,769 
122,769 
140,086 

.965 

.983 

.990 

1.000 

1.000 

1.011 

0.999 
1.081 
1.225 
1.406 

$60,330 
65,741 
74,234 
81,233 
86,212 

96,197 
103,260 
103,394 
100,220 

99,634 

a  See  Table  13E,  Column  D. 

b  Indices  derived  from  Bureau  of  Labor  Statistics  combined,  with  weights  assigned 
as  follows:  Building  labor  3,  Metals  and  metal  products  2,  Building  materials  1. 

c  See  Table  13E,  Column  G. 

d  An  average  of  the  indices  for  those  classes  spending  respectively  $5,000  and  $25,000 
annually  for  consumption  goods.    See  §  2c. 

Table  13F  indicates  that  when  price  variations  are  eliminated  corpo- 
rate savings  show  little  difference  at  the  beginning  and  end  of  the  decade ; 
but  that  the  disbursements  to  investors  rose  sharply  during  the  first  half 
of  the  period  and  then  became  nearly  stationary,  presumably  because  of 
the  prevalence  of  relatively  fixed  rates  in  the  face  of  rising  costs  of  operation. 

Table  13G  is  devoted  to  showing  the  fraction  of  the  net  value  product 
going  to  the  employees. 


S 


PRIVATE  ELECTRIC    LIGHT  AND  POWER   COMPANIES       165 


TABLE  13G 


THE  ESTIMATED  TOTAL  VALUE  PRODUCT  OF   PRIVATE   ELECTRIC 
LIGHT  AND  POWER  PLANTS  AND  ITS  DISTRIBUTION 


(Continental  United  States,  1909-1918) 


(Values  all  in  thousands  of  dollars) 


Share  of  stock  and  bond  holders 

Share  of 

employees. 

Salaries 

and  wages  e 

Total  value 
product  of 
industry  d 

Per  cent 

Year 

Retained  in 
business  a 
(Savings) 

Amounts 
withdrawn 

from 
business  b 

Total 

of  value 

product 

going  to 

employees 

1907 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

$19,622 

13,087 
17,925 

17,215 
17,263 
20,024 

12,710 
23,104 
31,784 

25,088 
20,282 

$43,924 

58,218 
64,623 
73,492 
81,233 
86,212 

97,255 
103,157 
111,769 
122,769 
140,086 

$63,546 

71,305 
82,548 
90,707 
98,496 
106,236 

109,965 
120,261 
143,553 
147,857 
160,368 

$31,935 

39,850 
46,520 

49,800 
55,658 

58,920 

61,990 
63,460 
71,060 

86,474 
96,520 

$95,431 

111,155 
129,068 
140,507 

15 1.1 51 
165,156 

171,955 
189,721 
214,613 
234,331 
256,888 

33.5 

35 . 8 
36.0 
35.4 
36.1 
35 . 7 

36.0 
33.4 
33.1 

36.9 
37.6 

a  See  Table  13E,  Column  D. 

b  See  Table  13E,  Column  G. 

c  Derived  from  Table  13C  by  combining  wages  and  salaries. 

d  Sum  of  two  preceding  columns. 

It  is  clear  that  the  employees  receive  a  smaller  share  of  the  value  product 
in  this  industry  than  in  most  other  fields.  This  may  be  due  to  the  large 
amount  of  investment  per  employee,  the  small  amount  of  labor  required 
per  unit  of  output,  or  perhaps  to  some  other  reason.  That  it  is  not  pri- 
marily the  result  of  paving  much  lower  average  wages  than  other  industries 
is  indicated  by  the  entries  in  Table  13H. 


166 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  13H 


AN  ESTIMATE  OF  THE  AVERAGE  ANNUAL  EARNINGS  OF  EMPLOYEES 
OF  PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES 


A 

B 

C 

D 

E 

F 

G 

H 

Call  n- 
dar  year 

Average 
number 
of  em- 
ployees 
actually 
at  work 

Fraction 
of  those 
attached 
to  in- 
dustry 
actually 
working 

Number 
attached 
to  in- 
dustry 
B 

C 

Total 
wages 
and  sal- 
aries 
paidc 
(Thou- 
sands) 

Average 
annual 
earnings 
per  em- 
ployee6 at- 
tached to 
industry 
E 

D 

Index  of 
prices  of 

goods  con- 
sumed by 

manual  and 

clerical 

workers  / 

.955 

.978 

.984 

.994 

1.000 

1.01 
1.03 

1  10 
1.29 

1.58 

Annual 
average 
earnings 
at  prices 
of  1913 
F 

G 

1907. . .. 

1909. .. . 
1910   .. . 
1911. .. . 
1912. . . . 
1913. . . . 

1914. ... 
1915. ... 
1916. .  .  . 
1917. . .  . 
1918. . .  . 

42,066  a 
71,395  a 

94,679  a 

.96  6 

.98  6 

.97'' 

43,920^ 

55,000  d 
60,500'/ 
67,000'/ 
72,830  e 
78,500  d 

84,100'/ 
N'.t.OOO'/ 
94,000'/ 
97,700'- 
101,500'/ 

$31,935 

39,850 
46,520 
49,800 
55,658 
58,920 

61,990 
63,460 
71,060 
86,47  t 
96,520 

$727 

725 

769 
743 
764 
751 

737 
713 
756 

8S5 
951 

$759 
786 
755 
769 
751 

730 

692 
687 
686 
602 

a  U.  S.  Census  of  Electric  Light  and  Power  Stations,  p.  120. 
6  Roughly  estimated. 
c  Computed  by  division. 
d  Interpolated' along  a  smooth  curve. 
'  See  Table  13G. 

/  Bureau  of  Labor  Statistics  index  carried  back  by  means  of  a  special  study;  see 
Table  2C. 

It  is  evident  that  the  purchasing  power  of  the  average  earnings  has 
failed  to  keep  pace  with  the  rising  price  level.  Whether  this  is  due  to  the 
substitution  of  a  poorer  grade  of  employees  or  a  failure  to  raise  wage  rates 
in  proportion  to  the  increase  in  the  price  level  is  not  indicated  by  the  data 
at  hand. 

It  seems  impracticable  to  measure  with  any  degree  of  accuracy  the 
output  per  employee  or  per  capita  for  other  periods  than  the  Census  years. 
Those  years  are  so  spaced,  however,  that  a  comparison  based  thereon 
answers  many  of  the  essential  queries.    The  data  appear  in  Table  131. 


S 


PRIVATE  ELECTRIC  LIGHT  AND  POWER  COMPANIES        167 


TABLE  131 


NUMBER  OF  KILOWATT  HOURS  PRODUCED  PER  EMPLOYEE  AND  PER 
CAPITA  BY  PRIVATE  ELECTRIC  LIGHT  AND  POWER  PLANTS 


a  U.  S.  Census  of  Central  Electric  Light  and  Power  Stations,  1917,  pp.  7~>  and  120. 

6  Estimated  by  means  of  a  special  study;  sec  §  2a. 

c  Census  estimate  quoted  in  Statistical  Abstract  of  U.  S.,  1910,  p.  076. 

A  glance  at  the  table  shows  a  remarkable  increase  in  the  amount  of  cur- 
rent generated  for  each  employee  at  work,  and  also  for  each  person  in  the 
country.  Whether  any  part  or  all  of  the  increased  production  per  employee 
is  due  to  greater  diligence  on  the  part  of  the  average  worker  could  only  be 
determined  by  further  investigation.  It  is  clear  that  electrical  energy 
produced  by  commercial  plants  is  playing  a  rapidly  increasing  role  in 
meeting  the  power  requirements  of  our  industries. 


CHAPTER  14 
TELEGRAPHS  1 

§  14a.  The  Census  Figures 

The  Telegraph  industry  was  covered  by  the  Census  in  1907,  1912,  and 
1917,  years  admirably  located  so  far  as  the  period  1909  to  1918  is  concerned 
and  the  figures  are  in  a  form  so  well  adapted  to  the  needs  of  this  investiga- 
tion that  estimates  for  the  Census  years  may  be  made  with  reasonable 
accuracy.  The  Census  presents  the  figures  for  wireless  telegraphs  in  a  cat- 
egory separate  from  that  dealing  with  land  telegraphs  and  ocean  cables, 
but  all  have  been  combined  in  the  study  here  presented.  Table  14A 
covers  the  Census  data. 

§  14b.  Disbursements  to  Stock  and  Bond  Holders 

The  entries  in  Table  14A  are  presumably  fairly  close  to  the  truth.  The 
next  problem  is  to  interpolate  estimates  for  the  intercensal  years.  Most 
of  the  telegraph  industry  is  in  the  hands  of  the  Western  Union  and  the 
Mackay  Companies;  hence  it  would  seem  an  exceedingly  simple  matter  to 
use  their  records  for  the  purpose  mentioned.  As  a  matter  of  fact,  accurate 
interpolation  by  this  method  is  impossible.  Some  of  the  obstacles  are  as 
follows: 

1 .  The  Mackay  Company  is  a  holding  company  and  it  does  not  present 
a  consolidated  account  or  reports  for  most  of  its  subsidiaries. 

2.  Much  of  the  recorded  business  of  both  companies  has  apparently 
been  excluded  from  the  Census,  the  reason  for  the  exclusion  not  being 
ascertainable,  but  presumably  duplication  in  accounts  has  been  discovered. 

3.  The  accounts  of  the  Mackay  subsidiaries  are  not  presented  in  suffi- 
cient detail  to  answer  our  purposes. 

4.  The  fiscal  years  of  the  corporations  do  not  correspond  with  the  calen- 
dar years. 

The  net  result  is  that  the  corporation  reports  and  Census  figures  for  the 
same  years  show  no  resemblance  to  each  other.  It  has,  however,  been  felt 
that  the  use  of  the  corporation  statistics,  unsatisfactory  as  they  are,  will 
give  slightly  better  results  than  would  direct  interpolations  along  smooth 
curves — hence  the  usual  procedure  has  been  followed,  the  criteria  chosen 
being  indicated  in  the  tables.     The  reader  is  warned,  however,  against 

1  Mr.  William  A.  Countryman  of  the  Census  Bureau  has  been  kind  enough  to  read  over 
this  report  and  offer  valuable  suggestions,  most  of  which  have  been  adopted. 

168 


TELEGRAPHS 

TABLE  14A 


1G9 


THE   ESTIMATED  VALUE   PRODUCT    IN    THE   CENSUS   YEARS   OF   THE 
TELEGRAPH  INDUSTRY  IN  THE  CONTINENTAL  UNITED  STATES 


Year 

1907 

1912 

1917 

Dividend  Payment  s.«     (Thousands) 

$  7,477 
2,653 

$  6,180 
2,769 

S  9,928 
2,584 

Total  Payments  for  Interest  and  Dividends  (Thousands 
Receipts  of  Interest  and  Dividends  from  Other  Corpo- 

$10,130 
1,415 

$  8,949 
780 

$12,512 

2,547 

Interest  and  Dividend  Payments  Originating  in  the 
Telegraph  Industrv.     (Thousands) 

$  8,715 
1,221 

S  8,169 
1,686 

S  9,965 

_'.  I9S 

Rent  of  Offices  and  Real  Estate.**    (Thousands) 

Total  Disbursements  to  Property  Owners.    (Thousands) 
Savings  e  of  All  Companies/*     (Thousands) 

$  9,936 
2,173 

$  9,855 
209 

$12,463 
8,625 

$12  109 

$10,064 

$21,  OSS 

$17  890 

$25,609 
50* 

$40,105 
330* 

Estimated  Other  Compensation  to  Employees^     (Thou- 
sands)   

10'< 

$  1 7  900 

$25,659 

$40,435 

Average  Number  of  Emplovees  Actually  at  Work 

Average  Pull-time  Annual  Compensation  per  Employee 

28,210 
$635 

38,253 

s<  171 

52,160 
$775 

SUMMARY, 

Total  Share  of  Property.     (Thousands) 

Total  Share  of  Employees.     (Thousands) 

$12,109 
17,900 

$10,064 

L'."»,659 

$2  LOSS 
40  435 

Total  Value  Product  of  Industrv.     (Thousands) 

Per  Cent  of  Value  Product  Going  to  Employees 

$30,009 

59.6 

$35,723 
71.8 

$61,523 
65  6 

T.  =  United  States  Census  of  Telegraphs. 

a  T.  1917,  pp.  16,  23,  and  25. 

6  T.  1917,  pp.  16,  23,  and  25;  a  study  of  the  income  statements  of  the  Western  Union 
and  Mackay  Companies  shows  thai  practically  the  entire  amount  recorded  by  the 
Census  as  "Interest"  must  be  bond  interest.  The  items  here  given  fail  to  include  the 
mortgage  interest  paid  by  the  wireless  companies.  The  exact  amounts  are  unknown 
but  they  are  too  small  to  be  of  moment. 

c  T.  1917,  pp.  16,  and  25.  The  consolidated  balance  sheet  shows  such  large  holdings 
fif  securities  that  apparently  the  Census  item  "Income  from  other  sources"  must  con- 
sist primarily  of  bond  interest  and  dividends;  see  T.  1!U7,  pp.  22  23.  This  item  is  not 
reported  for  wireless  companies;  hence  it  is  assumed  to  be*  negligible  and  is  omitted  from 
consideration. 

d  T.  1917,  pp.  17  and  23.  A  small  item  was  added  in  each  year  for  estimated  rent 
paid  by  wireless  stations.  The  estimates  were  tit),  56,  and  63  thousands  of  dollars  for 
the  respective  Census  years  beginning  with  1907.  The  estimates  were  based  on  as- 
sumed annual  rents  per  station  of  8500  in  1007,  §750  in  1912,  and  $1,000  in  1917.  The 
final  estimate  of  total  gross  rents  was  multiplied  by  0.7  in  order  to  obtain  a  figure  for 
net  rents,  the  0.3  being  allowed  for  repairs,  depreciation,  etc. 

c  Commonly  called  "Corporate  surplus." 

/T.  1917,  pp.  14,  22,  and  25. 


170 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  14A  NOTES— Continued^ 

g  Pensions,  compensation  for  injuries,  etc. 

/(  Pure  guesses. 

»  An  organized  system  of  benefits  was  initiated  by  the  Western  Union  Co.  in  1916; 
for  amount,  see  Standard  Corporation  Record  card  for  1920,  No.  VV1. 

attaching  too  great  importance  to  apparent  fluctuations  from  year  to  year 
as,  in  some  instances,  such  variations  in  the  figures  are  doubtless  due 
wholly  to  purely  accidental  errors.    Were  it  not  that  the  data  are  all  tied 

TABLE  14B 

THE  ESTIMATED  GROSS  DISBURSEMENTS  IN  THE  FORM  OF  DIVIDENDS 
AND  INTEREST  ON  THE  FUNDED  DEBT  MADE  BY  ALL  TELEGRAPH 
CORPORATIONS  IN  THE  CONTINENTAL  UNITED  STATES 


Dividend  payments  in  thousands 

Interest  payments  in  thousands 

of  dollars 

of  dollars 

A 

B 

C 

D 

E 

F 

G 

II 

I 

Divi- 

Interest 

Esti- 

plus 

Combined 

Esti- 

paid by 

mated 

interest 

Census 

dividends 

mated 

Census 

Western 

interest 

(Thou- 

Cal- 

figures, 

of  West- 

Ratio 

divi- 

figures, 

Union 

Ratio 

on 

sands  of 

endar 

all 

ern  Union 

of 

dends  of 

all 

and  the 

of 

funded 

dollars) 

year 

com- 

and 

B  toC 

all  com- 

com- 

Com- 

F to  G 

debt  of 

E  +  I 

panies  a 

Mack  ay 
CosM 

panies 

DXC 

panies  a 

mercial 
( lablec 

all  com- 
panies 

CosM 

GXH 

1907 

7,477 

6,947 

1 . 070  d 

7,477  a 

2,653 

9,576 

.2770-/ 

2,653  a 

10,130 

1909 

6,62:1 

,933<" 

6,180 

9,710 

.2861 « 

2,778 

8,958 

1910 

7,05!) 

.  894  e 

6,310 

9,711 

. 2887 « 

2,804 

9,114 

1911 

7,060 

.  88  1  ' 

6,240 

9,700 

.2901e 

2,814 

9,054 

1912 

6,1X0 

7,061 

S75  d 

6,180a 

2,769 

9,503 

.2914d 

2,769  a 

8,949 

1913 

7,061 

.872« 

6,160 

9,337 

. 2900  e 

2,708 

8,868 

1914 

8,058 

.  872  e 

7,026 

9,337 

. 2870  e 

2,680 

9,706 

1915 

9,055 

.871* 

7,887 

9,336 

2823  e 

2,636 

10,523 

1916 

10,054 

.  870  e 

8,747 

9,332 

■2775  <■ 

2,590 

11,337 

1917 

9,928 

11,407 

.870d 

9,928  a 

2,584 

9,332 

.2769d 

2,584  a 

12,512 

1918 

11,371 

.  868  e 

9,865 

9,332 

. 2760  e 

2,576 

12,441 

1919 

11,338 

867 « 

9,835 

9,332 

. 2754  e 

2,570 

12,405 

a  See  Table  14A.  The  Census  apparently  excludes  interest  charges  on  bonds  secured 
by  foreign  cable  lines  and  dividends  paid  to  foreign  investors. 

b  Figures  for  fiscal  years  1907  to  1912  inclusive  adjusted  to  calendar  years  by  aver- 
aging.   Data  from  Poor's  and  Moody's  Manuals  of  Public  Utilities. 

c  The  Commercial  Cable  Co.  is  a  subsidiary  of  the  Mackay  Cos. 

d  Computed. 

e  Read  from  a  smooth  curve. 

to  the  Census  at  five  year  intervals,  the  whole  study  might  well  be  regarded 
as  practically  worthless.  As  it  is,  it  cannot  well  go  far  astray  in  the  rela- 
tively brief  spaces  of  time  intervening  between  Census  years. 

Not  all  of  the  payments  to  stock  and  bond  holders  are  made  from  income 


^ 


TELEGRAPHS 


171 


originating  in  the  Telegraph  field,  for  Telegraph  Companies  hold  many 
income  bearing  securities  of  outside  concerns.  Income  derived  from 
these  securities  must  be  deducted,  .since,  according  to  our  plan  of  operation, 
it  is  assigned  to  the  field  in  which  it  originates  and  must  not  be  duplicated. 
Some  of  these  receipts  may  represent  merely  intercorporate  payments 

TABLE  14C 

THE  ESTIMATED  NET  DISBURSEMENTS  OF  DIVIDENDS  VXD  INTEREST 
OX  THE  FUNDED  DEBT  MADE  BY  ALL  TELEGRAPH  CORPORATIONS 
IN  THE  COXTIXEXTAL  UNITED  STATES 


A 

B 

c 

D 

E 

F 

o 

( lalendar 
year 

Receipts 

from 
dividends 
and  bond 
interest 
of  other 
corpora- 
tions in 
Census 
years  a 
(Thou- 
sands) 

$1,415 
780 

2,517 

Income  of 

WCstern 
Union  ( 'o. 
from  loans 
and  invest- 
ments 
(Thou- 
sands) 

Hat  LO  of 

BtoC 

Estimated 
income  of 
all  com- 
panies 

from 
divi  lends 
and  bond 
interest 
(Thou- 
sands) 
CXD 

( rross  divi- 
dends and 

interesl 
on  funded 
debt  paid/ 
(Thou- 
sands 

Payments  of 
dividends 

and  interest 
on  funded 

debt 
originating 
in  telegraph 

industry 
(Thousands) 

F  —  E 

1907 

1909 

1910   

1911 

L912 

1913 

Kill 

1915 

L916 

1917 

litis 

1919 

$1,460  e 

1,640  c 
1,408  6 
1,5036 
1,1826 
1,116  6 

1,0236 
1,3046 

1.702  6 
1,4856 
1,3916 

1,607  6 

.97 d 

.NO' 

.  75  ■ 
.70* 
.66  ' 
.73« 

93  e 

1.30« 

1  DO-' 
1   72'/ 
1.80 
1   86  « 

•81,415 

1,311 

1,055 

1,051 

780 

815 

952 
1,697 
2.725 
2,5  17 
2,510 
2,993 

810,130 

8,958 

9,11  1 
9,054 
8,949 

8,8uS 

!>.706 
10,523 
1 1 .337 
12,512 
12.111 
12,405 

$8,715 

7,647 
8,059 
8,003 
8,169 
8,053 

8,754 
8,826 
8,612 
9,965 
9,931 
9,412 

a  See  Table  14  A. 

6  Moody's  Manual  of  Public  Utilities  for  1920,  pp.  1130   1 L32. 

c  Assumed  that  ratio  of  this  income  to  that  of  1910  is  the  same  as  the  ratio  of  net 
earnings  for  the  same  years — data  are  missing. 
d  Computed. 

e  Read  from  a  smooth  curve. 
/See  Table  14B. 


within  the  industry.  Such  payments,  of  course,  must  be  eliminated. 
Table  14C  represents  an  attempt  to  get  rid  of  all  duplication  and  arrive 
at  the  actual  net  disbursements  made  in  the  form  of  interest  and  dividends. 
To  the  net  disbursements  in  the  form  of  dividends  and  interest  must  be 
added  the  rents  paid  for  offices  and  real  estate  if  we  are  to  arrive  at  the 


172 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


total  net  payments  going  to  individuals  who  have  property  claims  against 
the  industry.  Rents  have  been  assumed  to  vary  roughly  in  proportion  to 
the  gross  revenues  of  the  Western  Union  Company,  the  theory  being  that 
more  business  requires  more  office  space  and  that  gross  revenues  measure 


TABLE  14D 


THE  ESTIMATED  TOTAL  DISBURSEMENTS  TO  ENTREPRENEURS  AND 
OTHER  PROPERTY  OWNERS  MADE  BY  THE  TELEGRAPH  INDUSTRY 
OF  THE  CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

Total  dis- 

Net pay- 

bursements 

Rent  of 

Gross  earn- 

Estimated 

rent  paid 

for  offices 

(Thousands) 

CX  D 

ments  of 

to  entre- 

Cal- 

offices and 

ings  of 

dividends 

preneurs 

endar 

real  estate 

Western 

Ratio  of 

and  interest 

and  other 

year 

in  Census 
years  a 

Union 

Company  & 

B  toC 

on  funded 
debt  g 

property 
owners 

(Thousands) 

(Thousands) 

(Thou- 

(Thou- 

sands) 

sands) 

E  +  F 

1907.. 

$1,221 

$30,719 

.0397d 

$1,221/ 

$8,715 

$  9,936 

1909. . 

31,647 

.0393e 

1,244 

7,647 

8,891 

1910.. 

34,116 

. 0390  e 

1,331 

8,059 

9,390 

1911. . 

38,570 

. 0387 « 

1,493 

8,003 

9,496 

1912. . 

1,686 

44,024 

. 0383  d 

1,686  / 

8,169 

9,855 

1913.. 

45,784 

. 0374 « 

1,712 

8,053 

9,765 

1914.. 

46,21  i5 

.  0360  <■ 

1,666 

8,754 

10,420 

1915.. 

51,172 

.  0345 « 

1,765 

8,826 

10,591 

1916. . 

61,919 

. 0334  « 

2,068 

8,612 

10,680 

1917. . 

2,498 

76,996 

. 0324  d 

2,498  / 

9,965 

12,463 

1918. . 

86,702  h 

.0319" 

2,766 

9,931 

12,697 

1919. . 

103,756  c 

.0315  «■ 

3,268 

9,412 

12,6S0 

a  See  Table  14A. 

b  Amounts  for  fiscal  years  1907-1912  averaged  to  obtain  estimates  for  calendar 
years.    Data  derived  from  Poor's  and  Moody's  Manuals  of  Public  Utilities. 

c  Data  from  card  issued  Jan.  17,  1921,  by  Standard  Corporation  Service. 

d  Computed. 

e  Read  from  smooth  curve. 

/  Census  figures — see  Table  14A. 

o  See  Table  14C. 

*  Other  income  of  $1,391,128  subtracted  from  gross  income  as  reported  in  Statistical 
Abstract  of  U.  S.  for  1919,  p.  321.  "Other  Income"  reported  in  Moody's  Manual  of 
Public  Utilities  for  1920,  p.  1161. 

the  value  of  business  done.  It  has  also  been  assumed  that  30  per  cent  of 
the  gross  rent  is  necessary  to  cover  expenses  of  operating  the  buildings 
and  allowances  for  depreciation,  leaving  only  70  per  cent  as  net  income 
from  the  investment  in  the  buildings  and  land.  The  final  estimates  appear 
in  Table  14D. 


^ 


TELEGRAPHS 


173 


§  14c.  Corporate  Savings 

The  estimates  presented  in  the  preceding  tables,  while  probably  inac- 
curate, nevertheless  presumably  approach  the  truth.  No  estimate  is, 
however,  complete  if  the  corporate  savings  are  left  out.  It  may  be  true 
that  these  companies  have  saved  much  in  addition  to  their  normal  surplus 
by  charging  improvements  to  operating  expenses.     Whether  this  possi- 

TABLE  HE 

THE  ESTIMATED  TOTAL  SHARE  OF  THE  ENTREPRENEURS  AND  OTHER 
PROPERTY  OWNERS  IN  THE  VALUE  PR<  >DUCT  ( >F  TELEGRAPH  ( '<  >M 
PANIES  IN  THE  CONTINENTAL  UNITED  STATES,  A  CRUDE  APPROXI- 
MATION   TO    THE    CORPORATE    SAVINGS    OF   THESE    COMPANIES 
BEING  INCLUDED 


Amounts 

in  Thousands  of  Dollars 

Total  disburse- 

Reported 

Total  dis- 

ments to 

Calen- 

Corporate 

surplus  of 

Estimated 

bursements 

propertied 

dar 

savings,  as 

Marconi, 

corporate 

of  interest  on 

classes  and  cor- 

year 

reported  by 

Mackay,  and 

savings  of  all 

funded  debt, 

porate  surplus 

the  Census  a 

Western  Union 

companies 

dividends 

(Sum  of  two 

Companies  b 

and  rent e 

preceding 

columns) 

1907.  . 

$2,173 

$    111 

12,173  c 

S  9,936 

§12,109 

1909 . 

2,758 

5,000  d 

8,891 

13,891 

1910. . 

2,507 

4,200  d 

9,390 

13,590 

1911.  .  . 

1,728 

2,500<* 

9,496 

11,996 

1912. . . 

209 

820 

209  c 

9,855 

10,064 

1913.  . 

540 

300  d 

9,765 

10,065 

1914. . . 

649 

1,000'/ 

10,420 

11,420 

1915.  .  . 

5,508 

7,000'/ 

10,591 

17,591 

1916.  .  . 

6,228 

8,100'/ 

10,680 

18,780 

1917.  .  . 

8,625 

7,383/ 

8,625  '• 

12,463 

21,088 

1918. .  . 

4,637/ 

5,410-/ 

12,697 

is, 107 

1919.  .  . 

6,101/ 

7,130  / 

12,680 

19,810 

a  See  Table  14 A. 

b  Compiled  from  the  annual  reports  represented  in  Poor's  and  Moody's  Manuals 
of  Public  Utilities.  Amounts  for  fiscal  years  adjusted  by  averaging  to  obtain  estimates 
for  the  calendar  years. 

c  Census  figures — see  Table  1 1  A. 

d  Crudely  estimated  bv  aid  of  a  smooth  curve. 

«  See  Table  14D. 

/  Surplus  of  Western  Union  Co.  only. 

bility  has  been  duly  considered  and  guarded  against  in  compiling  the  Cen- 
sus reports,  is  not  known.  It  is  certain,  however,  that  the  published  cor- 
poration reports  of  surplus  show  no  resemblance  to  the  ones  given  by  the 
Census.    It  has  proved  impossible,  therefore,  to  interpolate  the  estimates 


174 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


for  the  surplus  according  to  the  usual  rules.  The  best  that  can  be  done 
with  the  data  at  hand  is  to  adjust  the  figures  roughly  so  that  the  principal 
fluctuations  shown  by  the  corporation  reports  are  given  consideration. 
These  crude  results  appear  in  Table  14E. 

§  14d.  Purchasing  Power  of  Share  of  Property  Owners  and  Entrepreneurs 

The  purchasing  power  of  the  income  received  by  property  owners  is 
arrived  at  by  dividing  the  number  of  dollars  by  an  index  of  the  average 

TABLE  14F 

THE  PURCHASING  POWER  OF  THAT  PART  OF  THE  INCOME  DERIVED 
FROM  THE  TELEGRAPH  INDUSTRY  OF  THE  CONTINENTAL  UNITED 
STATES  DISBURSED  TO  ENTREPRENEURS  AND  OTHER  PROPERTY 
OWNERS  OR  SAVED  BY  THE  CORPORATIONS 

(Amounts  in  Thousands  of  Dollars) 


A 

B 

C 

D 

E 

F 

G 

Calen- 
dar 
year 

Disburse- 
ments to  en- 
trepreneurs 
and  other 
property 
owners  a 

Index  of 
prices  of 
goods  con- 
sumed by 
wealthy 
classes  c 

Purchasing 
power  at 
prices  of 

1913 
B  -h  C 

Corporate 
savings  b 

Index  of 

construction 

costs  d 

<  '< instructive 

power  of 

corporate 

savings  at 

prices  of  1913 

E  -=-  F 

1907  .  .  . 

L909  ..  . 

1910  .  .  . 

1911  .  .  . 

1912  ... 

1913  .  .  . 

1914  ..  . 

1915  .  .  . 

1916  .  .  . 

1917  ..  . 

1918  .  .  . 

1919  ..  . 

$  9,936 

8,891 
9,390 
9,496 
9,855 

9,765 
10,420 
10,591 
10,680 

12,463 
12,697 
12,680 

.973 

.988 

.995 

1.000 

1.000 

1.010 

.996 

1.074 

1.198 
1.364 
1.628 

$  9,138 
9,504 
9,544 

9,855 

9,765 
10,317 
10,634 

9,944 

10,403 
9,309 
7,789 

$2,173 

5,000 

4,200 

2,500 

209 

300 
1,000 
7,000 
8,100 

8,625 
5,410 
7,130 

1.023 

.881 
.903 
.903 

.982 

1.000 

.968 

1.059 

1.336 

1.495 
1.525 
1.607 

82,124 

5,675 

4,651 

2,769 

213 

300 
1,033 
6,610 
6,063 

5,769 
3,548 
4,437 

a  See  Table  14D;  includes  interest,  dividends,  and  rents. 
b  See  Table  14E. 

c  See  Table  2E;  represents  families  spending  on  the  average,  $25,000  per  annum. 
d  Worked  out  by  the  statistical  department  of  the  American  Telephone  and  Tele- 
graph Co. 

prices  of  commodities  consumed  by  the  well-to-do  classes.     This  opera- 
tion has  been  carried  out  and  the  results  appear  in  Table  14F. 

A  glance  at  Table  14F  makes  it  evident  that  the  lean  period  for  the 
owners  of  the  telegraph  industry  was  in  1912  and  1913.  This  was  followed 
by  a  period  of  prosperity;  although,  in  1918,  the  share  of  the  property 
owners  again  declined  slightly,  only  to  recover  again  in  1919. 


<* 


TELEGRAPHS 


175 


§  14e.  The  Number  of  Employees  and  Their  Share  in  the  Value  Product 

The  corporate  reports  of  the  telegraph  companies  do  not  show  either  the 
number  of  employees  or  the  amounts  paid  in  wages.  They  do  not  even  tell 
how  many  messages  have  been  sent.  It  is,  therefore,  impossible  to  inter- 
polate these  quantities  between  the  years  in  which  we  have  Census  data 

TABLE  14G 

THE  ESTIMATED  SHARE  OF  THE  EMPLOYEES  IN  THE  VALUE  PRODUCT 
OF  THE  TELEGRAPH  INDUSTRY  OF  THE  CONTINENTAL  UNITED 
STATES 


A 

B 

C 

D 

E 

F 

G 

Calendar 

year 

Wages  and 

salaries  paid 

in  Census 

years  a 

(Thousands) 

Total  operat- 
ing expenses 
of  the  West- 
ern Union 

Co.W 
(Thousands) 

Ratio  of 
Bto  C 

Esl  imated 
total  wages 

and  salaries 

(Thousands) 

CX  D 

Estimated 
benefits 

paid  to 
employees/ 

(Thou- 
sands) 

Total  com- 
pensation of 

employees 

Thou- 
sands) 
E  +  F 

1907 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

$17,890 
25,609 

40,105 

$18,641 

21,904 
28,334 
33,063 
39,521 

42,327 
10.579 
10,973 
18,728 

62,783 
76,713 

78,6  16 

.960  c 

.706'/ 
.673^/ 
.  657  d 
.648c 

.  647  d 

.615'/ 
.643'/ 
.612'/ 

.  639  e 

.639'/ 

638  d 

$  17,890 « 

17,580 

19,070 
21.710 
25,609  « 

27,390 
26,200 
26,320 
31,260 

40,105  ■ 

49,000 

50,160 

$  10 

20 
30 
40 
50 

60 

70 

80 

330 

330 
330 
330 

§17,900 

17,600 
19,100 
21,750 
25,659 

27,450 
26,270 
26,400 

3  1.5'.  »0 

40,435 
1H.330 
50,490 

a  See  Table  11  A. 

b  Figures  for  fiscal  years  1907  to  1912  averaged  to  obtain  estimates  for  calendar  years; 
for  data  see  Poor's  and  Moody's  Manuals  of  Public  Utilities. 

c  Computed. 

d  Head  from  a  smooth  curve. 

e  Census  figures  -  sec  Table  1  IA. 

/The  Western  Union  Co.  established  a  system  of  benefits  in  1916.  See  Cards  \Y1 
and  2,  of  Standard  Corporation  Record  Service.  Before  that  date,  payments  were 
probably  rather  insignificant.  The  amounts  entered  for  years  previous  to  1916  are 
pure  guesses. 

with  any  degree  of  precision.  Since,  however,  an  estimate  must  be  made, 
recourse  has  been  had  to  the  assumptions  that  the  wages  are  proportional 
to  total  operating  expenses  and  that  the  number  of  employees  varies  in 
proportion  to  a  combination  of  the  total  volume  of  business  done,  and  the 
number  of  offices  operated.  This  index  is  chosen  because  it  is  evident 
that  the  number  of  offices  is  a  matter  of  fundamental  moment  in  this  con- 


176 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


nection,  and  it  seems  reasonable  to  suppose  that,  in  times  of  flush  business, 
the  companies  would  find  it  imperative  to  increase  somewhat  the  average 
number  of  employees  per  office.  The  fact  that  the  index  maintains  a 
fairly  constant  ratio  to  the  Census  figures  seems  to  show  that  it  has  some 
merit.  The  attempt  is  made  to  measure  the  volume  of  business  by  dividing 
the  gross  revenues  by  an  index  representing  the  price  of  messages.  No 
record  has  been  found  showing  any  changes  in  the  rates  for  messages  until 
March  31,  1919;  hence,  during  the  period  1909  to  1918,  this  price  index 
has  been  assumed  to  be  constant. 

The  application  of  these  assumptions  appears  in  Tables  14G  and  14H. 

TABLE  14H 

THE  ESTIMATED  TOTAL  ANNUAL  VALUE  PRODUCT  OF  THE  TELEGRAPH 
INDUSTRY  OF  THE  CONTINENTAL  UNITED  STATES  AND  THE  PRI- 
MARY DIVISION  OF  THIS  PRODUCT 


Values  in  thousands  of  dollars 

Calendar 
year 

Total  value 
product 

Total  compensa- 
tion of 
employees  a 

Disbursements  to 

property  owners 

and  corporate 

surplus  b 

Per  cent  of  value 
product  going 
to  employees 

1907 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

$30,009 

31,491 
32,690 
33,746 
35,723 

37,515 
37,690 
43,991 
50,370 

61,523 
67,437 
70,300 

$17,900 

17,600 
19,100 
21,750 
25,659 

27,450 
26,270 
26,400 
31,590 

40,435 
49,330 
50,490 

$12,109 

13,891 
13,590 
11,996 
10,064 

10,065 
11,420 
17,591 
18,780 

21,088 

18,107 
19,810 

59.6 

55.9 
58.4 
64.5 
71.8 

73.2 
69.7 
60.0 
62.7 

65.7 
73.1 
71.8 

a  See  Table  14G,  Column  G. 
b  See  Table  14E,  last  column. 

The  compilation  of  Table  14G  makes  it  possible  to  ascertain  what  frac- 
tion of  the  total  value  product  of  the  telegraph  industry  goes  to  compen- 
sate the  employees  for  their  efforts.  The  facts  in  this  connection  appear 
in  Table  14H. 

The  general  conclusion  must  be  that,  while  the  percentages  have  fluctu- 
ated violently,  the  employees  since  1911,  have  tended  to  receive  a  greater 
and  the  property  owners,  a  lesser  share  of  the  total  value  product  than  was 
the  case  during  the  period  1907  to  1911. 


,* 


TELEGRAPHS 


177 


§  14f.  Average  Annual  Earnings  of  Employees 

Tables  141  and  14J  throw  light  on  the  changes  that  have  occurred  in 
the  size  of  the  average  reward  of  employees  in  the  telegraph  industry. 


TABLE  141 


THE  ESTIMATED  NUMBER  OF  PERSONS  AT  WORK  FOR  OR  NORMALLY 
EMPLOYEE  BY  THE  TELEGRAPH  ( '<  >MPANIES  OF  THE  CONTINENTAL 
UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

H 

I 

J 

K 

Cal- 
endar 
year 

Average 

number 

employed 

in 

Census 

years  <* 

Gross 
operating 
revenues 
of  Western 

Union 
Company'' 
(Thou- 
sands) 

Index 
of 

tele- 
graph 

rates  c 

Index  of 
physical 

volume 

of 
business 

C 

D 

Twice 

the 
number 

of 
\Wstern 
Union 
Tele- 
graph 
offices/ 

Adjust- 
ment 
index  for 
number  of 
employees 
E  +  F 

Ratio  of 
B  to  G 

Esti- 
mated 
number 
of  em- 
ploy ees 
actually 
at  work 
G  X  II 

of 
number 
attached 

to 

industry 
who 

were 
actually 
working? 

Estimated 

number 
of  em- 
ployees 
attached 

to 

industry 

I-f-J 

1907 

1909 
1910 
1911 
1912 
1913 

1914 
1915 
1916 

1917 
1918 

1919 

28,210 
38,253 

52,160 

$30,719 

31,647 
34,116 

38,570 
44,024 

45,784 

46,265 
51,172 
61,919 
76,996 
86,702 

103,756 

1.00 

1.00 
1.00 
1.00 
1.00 
1.00 

1.00 
1.00 
1.00 
1.00 
1.00 

1.15 

30,719 

31,647 
34,116 
38,570 
44,024 
45,784 

46,265 
51,172 
61,919 
76,996 

86,702 

90,223 

48,613 

49,156 

49,751 
50,318 
51,392 
50,120 

51,568 
50,284 
50,468 
50,932 
50,904 

50,318 

79,332 

S0.803 
83,867 
88,888 
95,416 
95,904 

97,833 
101,456 
112,387 
127,928 
137,606 

140,511 

.3556c 

. 382 1  d 
.3913'' 
.3971d 
. 4009  c 
.4025^ 

. 4031 d 
.4061  d 
A072d 

.4077  c 
.4083  d 

.4087 d 

28,210 

30,900 

32,SL>() 
35,300 
38,253 

38,600 

39,470 

41.200 
15,760 
52, 160 
56,185 

57,440 

.976 

964 

964 

.967 

'.Mis 

.950 

943 
.933 

975 

979 

.971 

.980'' 

28,800 

32,050 
34,050 

36,500 
39,500 
40,650 

41,850 
44.150 
46,920 
53,300 
57,870 

58,600* 

a  Census  figures — see  Table  14A. 

b  See  Table  14D,  Column  C. 

c  Computed. 

d  Read  from  a  smooth  curve. 

>   For  origin,  see  text.     Hates  were  raised  20  per  cent  on  March  31,  1919. 

f  Statistical  Abstract  of  the  U.  S.  and  Moody's  Manual  of  Public  Utilities. 

o  Estimated  by  means  of  a  special  study  recorded  in  Table  2K. 

h  Tentative  estimate  only. 

It  is  evident  that  among  the  regular  employees  of  every  industry,  there 
are,  at  any  given  time,  a  considerable  number  who  are  not  at  work.  This 
being  true,  the  average  number  at  work  is  necessarily  always  consider- 
ably less  than  the  number  who  depend  on  the  industry  for  a  livelihood. 
The  Census  records  only  the  number  actually  at  work.  In  the  last  col- 
umns of  Table  141,  this  item  has  been  adjusted  in  a  way  intended  to  give 
an  approximation  to  the  number  attached  to  the  industry.  The  mode  of 
adjustment  used  is  described  in  §  2d. 


178 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


Table  14J  is  devoted  to  an  estimate  of  the  average  amount  received 
annually  by  each  employee  commonly  employed  by  telegraph  companies 
and  the  purchasing  power  of  that  amount  on  the  basis  of  prices  of  1913. 

TABLE  14J 

THE  ESTIMATED  AVERAGE  ANNUAL  COMPENSATION  OF  WORKERS 
NORMALLY  EMPLOYED  IN  THE  TELEGRAPH  INDUSTRY  OF  THE 
CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

Year 

Estimated 
total 

compensa- 
tion paid  to 

employees  « 
(Thousands) 

Estimated 

number  of 

employees 

normally 

attached 

to  this 

industry  & 

Average 
money  com- 
pensation 
per  employee 
B  -=-C 

Average 
index  of 
prices 
of  com- 
modities 
bought  by 
manual  and 
clerical 
workers 

Annual  com- 
pensation of 
the  average 
employee  in 
dollars  of 
1913  value 
D  -=-E 

1909 

1910 

1911 

1912 

1913 

1914 

1916 

1917 

1918 

1919 

$17,600 
19,100 
21,750 
25,659 
27,450 

26,270 
26,400 
31,590 
40,435 
49,330 

50,490 

32,050 
34,050 
36,500 
39,500 

40,650 

41,850 
44,150 
46,920 
53,300 
57,870 

58,600  c 

8549 
561 
5'.  Mi 
650 
675 

628 
598 

673 
759 

852 

862  c 

.  955 
.978 
.  984 
,994 
1 .  000 

1.01 

1.03 
1.10 

1.29 
1.58 

1.773 

S575 
574 
606 
654 
675 

622 
581 
612 
588 
539 

486 

a  See  Table  14G. 

b  See  Table  141. 

c  Tentative  estimate  only. 

The  errors  in  the  data  are  too  great  to  permit  of  drawing  any  conclu- 
sions from  the  minor  fluctuations  in  the  recorded  wage,  but  apparently 
the  purchasing  power  of  the  average  employee's  compensation  tended 
somewhat  downward  after  1913,  and  in  1919  was  no  higher  than  it  was  in 
1909.  It  is  then  evident  that  a  gain  in  the  percentage  of  the  value  product 
received  does  not  necessarily  mean  an  improvement  in  the  general  eco- 
nomic welfare  of  those  employed  in  an  industry. 


<* 


CHAPTER  15 
TELEPHONES 

§  15a.  Introduction 

Census  Bureau  reports  on  the  telephone  industry  in  1907,  1912,  and  1917 
appear  to  be  fairly  complete,  covering  most  facts  of  importance  for  all 
enterprises  of  any  considerable  size,  and  collecting  a  few  facts  concerning 
practically  all  telephone  plants  in  the  United  States.  This  study  is  ba 
upon  the  Census  reports  for  those  years.  The  American  Telephone  and 
Telegraph  Company  controls  about  four-fifths  of  the  telephone  business 
of  the  country,  hence  most  interpolations  have  been  made  upon  the  basis 
of  the  reports  of  its  operations  as  given  in  Poor's  or  Moody's  Manuals  of 
Public  Utilities. 

§  15b.  Share  of  Entrepreneurs  and  Other  Property  Owners 

In  this,  as  in  other  similar  fields,  the  value  product  is  estimated  by  ascer- 
taining those  sums  which  have  originated  through  the  activities  of  this 
particular  industry  and  which  have  been  disbursed  to  individuals  or 
secured  by  the  corporations  engaged  in  the  telephone  business.  To  ascer- 
tain the  amounts  actually  originating  in  the  telephone  industry,  it  is  nec- 
essary first  to  deduct  from  gross  payments  of  bond  interest  and  dividends 
items  of  the  same  nature  received  from  other  corporations,  since  such  items 
are  accounted  for  in  the  field  in  which  they  originated. 

Following  our  standard  plan  of  procedure,  it  is  next  necessary  to  esti- 
mate the  share  of  the  entrepreneurs  and  other  property  owners  in  t  he  value 
product  for  the  intercensal  years.  Since  the  Bell  system  practically  dom- 
inates the  field,  interpolations  have  been  made  on  the  basis  of  the  consoli- 
dated financial  statistics  of  the  Bell  companies  as  presented  in  Poor's 
and  Moody's  Manuals  of  Public  Utilities.  The  computations  are  shown 
in  Table  15B. 

Table  15B  shows  that  disbursements  and  surplus  as  measured  in  money 
both  increased  from  1907  to  1916  but  that,  since  that  date,  although  dis- 
bursements have  continued  to  grow,  less  has  been  saved.  However,  these 
figures  need  to  be  corrected  for  changes  in  the  price  level.  Table  l.">( '  has 
been  constructed  to  show  the  approximate  equivalent  in  consumption 
goods  which  the  property  owners  could  buy  with  their  share  of  the  prod- 
uct for  each  of  the  various  years. 

179 


180  THE  ESTIMATE   BY   SOURCES  OF   PRODUCTION 

TABLE  15A 

THE  ESTIMATED  SHARE  OF  THE  VALUE  PRODUCT  OF  THE  TELEPHONE 
INDUSTRY  OF  THE  CONTINENTAL  UNITED  STATES  IN  THE  CENSUS 
YEARS  DISBURSED  TO  THE  PROPERTY  OWNERS  OR  SAVED  BY  THE 
OWNING  CORPORATIONS 


1.  Interest  on  Funded  Debt  a  plus  Dividends  paid 
by  Larger  n  Companies.    (In  Thousands) 

2.  Interest  on  Funded  Debt  plus  Dividends  Re- 
ceived by  Larger  Companies.    (In  Thousands). 

3.  Payments  by  larger  Companies  of  Dividends  and 
Interest  Originating  in  the  Telephone  Industry.'' 
(In  Thousands) 


4.  Net <  Rent  Paid  by  Larger  Companies  to  Individ- 
uals.    (In  Thousands) 


Dividends,  Rent,  and  Interest  on  the  Funded 
Debt  Arising  from  the  Operations  of  the  Larger 
Companies.*'     (In  Thousands) 


C.  Estimated  Ratio  of  Dividend,  Rent,  and  Interest 
Payments  of  All  Companies  to  Those  of  Larger 
Companies  only 


7.  Estimated  Dividends,  Rent,  and  Interest  on  the 
Funded  Debt  Originating  in  the  Entire  Tele 
phone  Industry.0     (In  Thousands) 


1907 


116  b 


$  1,025  b 


$35,091 


$  1,092(7 


$30,183 


1 . 009  i 


$36,500 


1912 


8.  Savings  or  Corporate  Surplus  of  the  Larger  Com- 
panies.    (In  Thousands) 

9.  Estimated  Savings  of  All  Companies. v    (In  Thou- 
sands)   


10.  Estimated  Total  Savings  plus  Disbursements  to 
the  Property  Owners.Q     (In  Thousands) 


$19,926  b 
$20,120 

$56,620 


$51,361  cd 
$  4,365<* 

$46,996 
$  1,597  <** 

$48,593 

1 .  0577  !>n 

$51,500 

$17,206  d 
$18,210 

$69,710 


1917 


$66,561 « 
$  4,496 «/ 

$62,065 
$  1,413  m 

$63,478 

1.050* 

$66,580 

$14,127 e 

$14,840 

$81,420 


T.  =  U.  S.  Census  of  Telephones. 

a  Includes  beside  bond  interest,  small  amount  paid  as  interest  on  real  estate  mort- 
gages, b  T.  1907,  p.  65. 

c  In  1907,  76.7  per  cent  of  all  interest  was  interest  on  the  funded  debt  and  mortgages; 
in  1917  the  percentage  had  increased  to  94.4.  The  percentage  in  1912  was  assumed  to 
be  an  average  of  these  two,  or  85.55  per  cent.  This  percentage  amounts  to  17,240 
thousands  of  dollars. 

d  T.  1912,  p.  45.  e  T.  1917,  p.  42. 

/Telephone  officials  state  that  the  item  of  "Interest  from  Other  Sources"  includes 
but  very  small  amounts  of  interest  on  bonds.  It  is  assumed  therefore  that  only  5  per 
cent,  or  160  thousands  of  dollars,  has  been  accounted  for  in  the  reports  of  other  industries. 

o  The  item  of  "Rent  of  Offices  and  Real  Estate,"  as  given  in  T.  1912,  p.  46,  cannot 
be  used  here,  for  it  includes  a  large  estimate  for  the  rent  of  real  estate  owned  by  the 
telephone  companies;  hence  actual  rent  paid  is  assumed  to  equal  0.684  X  Rent  in  1912, 
this  being  the  ratio  of  the  total  operating  expenses  of  1907  to  those  of  1912. 

h  "Rent  of  Offices  and  Other  Real  Estate." 

*  Estimated  on  the  basis  of  information  obtained  from  telephone  officials  as  being 
47  per  cent  of  all  rentals. 

J  Assumed  to  vary  in  proportion  to  income;  see  T.  1907,  p.  14. 

k  Assumed  to  vary  as  total  revenue;  see  T.  1917,  p.  10. 


S 


TELEPHONES 


181 


TABLE  15A  NOTES  —Continued 

1  Ratio  obtained  by  following  process:  Ratio  of  wire  mileage  of  small  companies  to 
large  was  .0646  in  1912  and  .0560  in  1917.  Ratio  of  revenue  of  small  to  Large  com- 
panies was  .050  in  1917.  Then  X  :  .050  ::  .0648  :  .0560.  Therefore  X  =  .0577.  The 
ratio  sought  is  1  +  X,  or  1.0577. 

m  T.  1912,  p.  12.  "  Based  on  Census  classification. 

0  Product  of  items  in  the  two  preceding  line.-.;  equivalent  to  all  net  disbursements  to 
the  propertied  classes. 

v  Assumed  that  savings  vary  in  the  same  proportion  as  do  disbursements  to  property 
owners;  hence  the  items  in  line  9  are  the  products  of  those  in  lines  0  and  8.  In  general 
this  item  may  be  too  large  because  some  small  companies  may  have  failed  and  their 
losses  escaped  the  Census  records  or  because  some  companies  have  not  allowed  enough 
for  depreciation,  or  it  may  be  too  small  because  they  charged  new  construction  to  op- 
erating expenses.  Col.  M.  C.  Rorty  believes  the  recorded  decline  in  savings  is  largely 
the  result  of  erroneous  accounting.  Complete  evidence  being  lacking,  however,  it 
seems  best  to  accept  the  Census  figures. 

i  Equals  receipts  as  dividends,  interest,  and  rent  plus  their  claims  to  an  ultimate 
division  of  the  corporate  savings;  in  other  words  the  sum  of  the  items  in  lines  7  and  9. 

T  Difference  of  items  in  two  preceding  lines. 

«  Sum  of  items  in  two  preceding  lines. 

1  The  net  rent  is  estimated  as  70  per  cent  of  the  gross  on  the  ground  that  30  per  cent 
is  required  to  cover  maintenance  and  depreciation. 

TABLE  15B 

THE  CORPORATE  SAVINGS  AND  THE  AMOUNTS  PAID  TO  ENTRE- 
PRENEURS AND  OTHER  PROPERTY  OWNERS  FROM  THE  VALUE 
PRODUCT  OF  THE  TELEPHONE  INDUSTRY  OF  THE  CONTINENTAL 
UNITED  STATES  ESTIMATED  FOR  EACH    YEAR 


A 

B 

C 

D 

E 

F 

<; 

H 

I 

Bstimated 

total  dis- 

Bond in- 

total  dis- 

iated 

Estimated 

bursements 

terest  and 

bursemi  nts 

savings  1  >1 

Surplus 

savings  oi 

to 

dividends 

in 

all  com- 

of Bell 

all  com- 

\ear 

propertied 

paid  by  Hill 

BtC 

propertied 

panies  m 

( 'ompaniesc 

F  ~  G 

panies 

classes  in 

Companies  * 

classes 

(  ensus 

(Thousands 

(Thou- 

Census 
years  <* 

(Thousands  i 

(Thousan  Is) 
C  X  D 

years  •' 
(Thousan  Is) 

san 
G  X  11 

(Thousands) 

1907 

$36,500 

.$28,317  b 

1.289<* 

$36,500 

$20,120 

$12,5246 

1.607'/ 

$20,120 

1909 

34,132 

1.233< 

42,085 

14,236 

1.515' 

21,624 

1910 

36,718 

1.211* 

44,465 

1  1,277 

1.470* 

211.' is? 

1911 

39,578 

1.191' 

47,2:1'', 

12,009 

1.425 « 

17,113 

1912 

51,500 

43,665 

1.179*/ 

51,500 

18,210 

13,221 

l.377d 

18,210 

1913 

46,955 

1.165' 

5  1.70:; 

11,735 

1.303< 

15,291 

1914 

49,215 

1.155 

56,878 

10,002 

1.213- 

12,432 

1915 

50,99: 1 

1.115- 

5S.100 

15,189 

1.100' 

17,619 

1916 

53,539 

1.139* 

60,981 

22,079 

1    090* 

24,066 

1917 

66,580 

58,683 

1    135  d 

66,580 

14,840 

13,852 

1.07!'/ 

14,840 

1918 

62,846 

1.  128 « 

70,x<)() 

12,213 

1.070/ 

13.06S 

1919 

67,533 

1.123* 

75,840 

12,118 

1.069/ 

12,954 

a  See  Table  15A.  b  Poor's  Manual  of  Public  Utilities,  1914,  pp.  1092,  1096. 

e  See  Moody's  Manual  of  Public  Utilities,  1920,  p.  1363. 

d  Computed  by  division.  ■  Read  from  a  smooth  curve. 

/Computed  by  study  of  surpluses  of  non-Bell  companies  as  recorded  in   Moody's 
Manuals. 
0  See  Table  15A;  also  note  p  attached  to  that  table. 


182 


THE  ESTIMATE   BY  SOURCES  OF  PRODUCTION 


The  price  index  used  in  reducing  corporate  savings  to  a  basis  of  pur- 
chasing power  is  one  intended  approximately  to  represent  construction 
costs.  It  is  a  composite  of  indices  representing  hourly  wages  of  labor  and 
prices  of  the  commodities  used  in  the  construction  of  telephone  plants, 
weighted  in  proportion  to  the  amount  of  each  commodity  used.  The  index 
was  worked  out  by  the  statistical  department  of  the  American  Telephone 
and  Telegraph  Company. 

TABLE  15C 

THE  PURCHASING  POWER  OF  THE  CORPORATE  SAVINGS  AND  THE 
DISBURSEMENTS  MADE  TO  ENTREPRENEURS  AND  OTHER  PROP- 
ERTY OWNERS  FROM  THE  NET  VALUE  PRODUCT  OF  THE  TELE- 
PHONE INDUSTRY 


Disbursements  to  entrepreneurs 
and  other  property  owners 

Corporate  savings 

A 

B 

C 

D 

E 

F 

G 

Year 

Rent, 
dividends, 
and  bond 
interest  « 
(Thou- 
sands 

Index  of 
prices  of 
consump- 
tion goods 
purchased 
by  wealthy 

classes  b 
Base,  1913 

Value  at 
prices  of 

1913 
(Thou- 
sands) 

B    -r    C 

Corporate 
savings  a 
(Thou- 
sands) 

Index  of 
construc- 
tion costs  c 

Value  at 
prices  of 
1913 
(Thou- 
sands) 
E  +  F 

1907. .  . 

1909. .  . 
1910..  . 
1911.. 
1912..  . 

1913..  . 
1914..  . 
1915..  . 
1916..  . 

1917..  . 
1918..  . 
1919..  . 

$36,500 

42,085 
44,465 
47,256 
51,500 

54,703 
56,878 
58,400 
60,981 

66,580 
70,890 
75,840 

.973 

.988 

.995 

1.000 

1.000 

1.010 

.996 

1.074 

1.198 
1.364 
1.628 

$43,253 
45,005 
47,493 
51,500 

54,703 
56,315 
58,635 
56,779 

55,576 
51,972 
46,585 

$20,120 

21,624 
20,987 
17,113 
18,210 

15,291 
12,432 
17,619 
24,066 

14,840 
13,068 
12,954 

1 .  023 

.881 
.903 
.903 
.982 

1.000 

.968 

1 .  059 

1.336 

1.495 
1  525 
1 .  607 

$19,668 

24,545 
23,241 
18,951 
18,544 

15,291 
12,843 
16,637 
18.013 

9,926 
8,569 
8,061 

a  See  Table  15B. 

b  See  Table  2E;  applies  to  families  spending  on  the  average  $25,000  annually  for 
consumption  goods. 

c  Calculated  by  the  statistical  department,  of  the  American  Telephone  and  Telegraph 
Co.,  and  furnished  to  the  Bureau  through  the  kindness  of  Col.  M.  C.  Rorty. 

A  study  of  Table  15C  shows  that  corporate  savings  have  declined  to 
half  their  former  money  value  and  to  only  a  little  over  one-third  of  the 
purchasing  power  which  they  had  at  the  beginning  of  the  decade.  This 
decline  in  savings  has  been  going  on  at  the  same  time  that  dividends  have 


TELEPHONES 


]-:; 


been  increasing  somewhat.     The  purchasing  power  of  the  disbursements 

to  the  investors  and  property  owners  tended  to  increase  until  1916,  but, 
since  that  date,  has  fallen  off  sharply. 

§  15c.  The  Net  Value  Product  and  Its  Distribution 

The  estimated  net  value  product  of  the  telephone  industry  is  made  up 
of  four  parts:  namely,  the  corporate1  savings,  the  disbursements  to  entre- 

TABLE  15D 

AN  ESTIMATE  OF  THE  VALUE  PRODUCT  OF  THE  TELEPHONE  INDUS- 
TRY IN  THE  CONTINENTAL  UNITED  STATES  AND  THE  SHARE  OF 
THE  EMPLOYEES  THEREIN 


Total  pay- 

Total share 

Total  salaries 

ments  to 

of  entrepre- 

and wages 

paid  to 

employees 

as  esti- 

neurs and 
other  own- 

Uncollect- 

Total net 

Per  *•< -lit  of 

total  value 

product 

going  to 

employees 

Year 

employees 

mated  from 

ers  oi  prop- 

ible 

value 

as  estimated 

reports  of 

erty  used 

revenues*/ 

product 

from  Census 

telephone 

in  the 

(Thousands 

(Thousands 

reports 

companies/ 

industry  e 

(Thousands) 

(Thou- 

(Thou- 

sands) 

sands 

1907 . .  . 

$68,279  a 

871,737 

S56,620 

S    784 

8129,141 

55  5 

1909. 

81,160 

63,709 

912 

145,811 

.-,.-)  7 

1910. .  . 

91,677 

65,452 

1.020 

158,1  19 

58  0 

1911 .  .  . 

103,140 

64,369 

1.104 

L68.613 

61.2 

1912. .  . 

101,400  cb 

112,653 

69,710 

1,188 

183,.-).-,  1 

61.4 

1913.  .  . 

126,027 

69,994 

1,285 

197,306 

63.9 

1914.  .  . 

129,255 

69,310 

1,380 

199. Mi:, 

64  6 

1915.  .  . 

127,598 

76,019 

1 .  180 

20.-,.  097 

62.2 

1916.  .  . 

153,526 

85,047 

1,590 

210,163 

63.9 

1917.  .  . 

175,670  d 

172,740 

81,420 

1,731 

255,891 

07  :, 

1918.  .  . 

191,169 

83,958 

1,900 

280,027 

69  3 

1919.  .  . 

245,420 

88,794 

2,080 

336,294 

73.0 

a  U.  S.  Census  of  Telephones,  1907,  p.  16. 

i>  101,400  =  90,011  (the  number  employed  by  large  systems),  X  1.0577.  The  ratio 
1.0577  is  used  because  it  is  the  best  comparison  at  hand.  Its  computation  is  described 
in  Note  1,  Table  15A. 

c  U.  S.  Census  of  Telephones,  1912,  p.  48. 

d  U.  S.  Census  of  Telephones,  1917,  p.  10. 

«  See  Table  15B,  Column  E,  plus  Column  I. 

/  For  derivation,  see  text. 

o  Based  on  U.  S.  Census,  interpolations  for  intercensal  years  male  by  aid  of  a 
smooth  curve. 

*  Sum  of  items  in  three  columns  immediately  preceding. 

preneurs  and  other  property  owners  already  discussed,  the  share  of  the 
employees,  and  the  uncollectible  revenues,  the  last  mentioned  item  repre- 
senting valuable  services  received  by  consumers  for  which  the  recipients 


184  THE   ESTIMATE   BY  SOURCES  OF  PRODUCTION 

have  failed  to  make  recompense.  These  four  shares  have  been  added  and 
the  sum  appears  in  Table  15D. 

The  largest  share  in  the  value  product  of  the  telephone  industry  con- 
sists of  the  payments  made  to  employees.  These  payments  consist  mainly 
of  wages  and  salaries,  but  the  employees  also  receive  a  considerable  sum 
in  the  form  of  benefits  and  pensions.  The  totals  as  presented  in  Table 
15D  have  been  derived  from  reports  of  the  important  telephone  compa- 
nies. The  closeness  of  these  results  to  the  Census  figures  makes  it  highly 
probable  that  both  sets  are  approximately  accurate.  The  reason  for  using 
these  data  rather  than  the  Census  figures  themselves,  is  that  the  figures 
presented  here  are  largely  secured  from  a  compilation  of  actual  payments 
for  each  year,  while  the  Census  data  are  based  upon  estimates  only. 

The  last  column  of  Table  15D  shows  that  the  employees  have  been  get- 
ting a  steadily  increasing  share  of  the  value  product  until,  in  1919,  their 
share  absorbed  nearly  three-fourths  of  the  net  income  arising  from  the 
industry. 

But  to  know  the  share  of  the  total  product  received  does  not  tell  whether 
each  employee  is  better  or  worse  off  than  before.  This  depends  upon 
the  number  of  employees  as  well  as  upon  the  total  amount  paid  to  em- 
ployees. 

§  15d.  The  Number  of  Employees 

Table  15E  represents  an  estimate  of  the  average  number  of  employees 
attached  to  the  telephone  industry  in  each  year.  The  estimate  of  the 
fraction  of  workers  actually  employed  is  based  upon  assumptions  none  too 
well  established.1  However,  the  internal  evidence  of  the  data  apparently 
tends  to  substantiate  the  approximate  correctness  of  the  fraction  presented. 
It  is  believed,  therefore,  that  the  figures  shown  in  Table  15E  are  not  very 
far  from  the  truth. 

3  See  §  2d. 


S 


TELEPHONES 


L85 


TABLE  15E 


THE     ESTIMATED     NUMBER     OF     EMPLOYEES     ATTACHED     TO     THE 
TELEPHONE  1XDISTRY  OF  THE  CONTINENTAL  UNITED  STATES 


A 

B 

c 

D 

E 

F 

G 

Number  of 
employees 

of  all 
telephone 

systems 
actually 

Estimated 

Estimated 

Estimated 

number  ol 

fraction 

Est  imated 

number  of 

employees 

of  number 

number  of 

Year 

employees 

B  -7-C 

actually 

attached 

employees 

of  Bell 

at  work 

to  industry 

attached 

Telephone 

in  all 

who  are 

to  industry 

Companies'/ 

systems 

actually 

EtF 

CX  D 

employed 

1907.  .  .  . 

144.169  a 

102,100 

1.412" 

144,169 

.982 

146,800 

1909    .  .  . 

101,300 

1.412/ 

143, 0(10 

.957 

149,500 

1910 

112,500 

1.413  ' 

159,000 

.974 

103.200 

1911.  .  .  . 

127,200 

1.414/ 

179,800 

.970 

185,300 

1912.  ..  . 

194,000  6 

137,100 

1.415< 

194,000 

.949 

204,500 

1913 

151,200 

1114  / 

213.mii) 

.  983 

217.500 

1914.  .  .  . 

152.000 

1.413/ 

214,800 

.952 

225,000 

1915.  .  .  . 

147,200 

1.412/ 

2D7.900 

.901 

230,000 

1916 

168,100 

1.411/ 

237,200 

.980 

212,000 

1917 

262,629  c 

1  si  1,100 

1.411- 

202,029 

9S2 

207,400 

1918 

197,000 

1.411/ 

278,000 

.975 

285,200 

1919.    .. 

204,100 

1.411/ 

288,000 

982o 

293,000  9 

"  U.  S.  Census  of  Telephones,  1907,  p.  16. 

b  U.  S.  Census  of  Telephones,  1912,  p.  48,  .-hows  larger  companies  to  have  90.011 
employees.  This  number  has  been  multiplied  by  1.0577,  the  ratio  obtained  in  Table  1. 
note  1. 

c  U.  S.  Census  of  Telephones,  1917,  p.  10. 

d  Read  from  smooth  curve  based  on  recorded  number  of  employees  on  December 
31st,  of  each  year,  as  shown  in  Poor's  and  Moody's  Manuals. 

e  Computed. 

/Interpolated  along  a  smooth  curve. 

a  Tentative  estimate  only. 

§  15e.  Average  Annual  Earnings  of  Employees 

With  estimates  available  of  the  total  amount  paid  to  employees  by 
telephone  companies  and  of  1  ho  total  number  of  employees  attached  to  the 
industry,  it  is  only  necessary  to  divide  the  first  item  by  the  second  in  order 
to  arrive  at  the  average  amount  paid  to  each  employee  This  average, 
however,  means  little  until  it  is  divided  by  an  index  of  the  prices  of  such 
consumption  goods  as  are  purchased  by  employees.  The  results  of  com- 
putations along  these  lines  are  shown  in  Table  15F. 

Column  D  of  this  table  makes  it  evident  that  the  average  employee  is  a1 
present  receiving  many  more  dollars  per  annum  than  was  formerly  the 
case.     However,  each  of  these  dollars  has  bought  so  much  less  in  recent 


186 


THE  ESTIMATE   BY  SOURCES  OF  PRODUCTION 


TABLE  15F 


THE  PURCHASING  POWER  OF  THE  COMPENSATION  OF  THE  AVERAGE 
EMPLOYEE  ATTACHED  TO  THE  TELEPHONE  INDUSTRY  IN  THE 
CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

Year 

Estimated 
total  of 

payments 

to  employees  a 

(Thousands) 

Estimated 

number  of 

employees 

attached 

to  industry  b 

Estimated 

amount  paid 

to  average 

employee 
attached  to 

industry  e 

B    -r-   C 

Index  of 

prices  of 

consumption 

goods  bought 

by  manual 

and  clerical 

workers  c 

Estimated 
purchasing 
power  of 
compensa- 
tion paid 
to  average 
employee  e 
DvE 

1907 

1909 

$71,737 

81,160 

91,677 
103,140 
112,653 

126,027 
129,255 
127,598 
153,526 

172,740 
194,169 
245,420 

146,800 

149,500 
163,200 
185,300 
204,500 

217,500 
225,600 
230,000 
242,000 

267,400 
285,200 
293,000-/ 

$489 

543 

562 
557 
551 

579 
573 
555 
634 

646 

6S1 
838  d 

.955 

.978 
.984 
.994 

1.000 
1.01 
1.03 
1.10 

1.29 
1.58 

1  773 

$569 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919. . . 

575 
566 
554 

579 
567 
539 
576 

501 
431 
473  d 

a  See  Table  15D 
6  See  Table  15E. 


includes  wages,  salaries,  pensions,  c<  mpensation  for  injuries,  etc. 


Bureau  of  Labor  index  extended  back  through  special  study  by  this  Bureau.  See 
Table  2C. 

d  Tentative  estimate  only. 

e  The  decline  in  the  average  wage  and  its  purchasing  power  is  accounted  for  largely 
if  not  entirely  by  the  large  increase  in  the  number  of  female  as  compared  to  male  em- 
ployees, the  former  constituting  only  54  per  cent  of  the  total  in  1907,  but  70  per  cent 
in  1920. 


years  that  the  actual  purchasing  power  of  the  average  employee's  income 
from  the  telephone  business  was  materially  less  in  1919  than  it  was  in  1913. 
This  decline  in  the  average  is,  however,  at  least  partly  due  to  the  fact  that, 
during  this  decade,  women  have  constituted  a  rapidly  increasing  fraction 
of  the  total  number  of  telephone  employees. 


§  15f.  The  Efficiency  of  the  Employees 

The  increase  or  diminution  in  the  efficiency  of  the  telephone  worker  as  a 
producer  cannot  be  measured  exactly  because  we  have  no  record  of  the 
changes  in  the  amount  of  effort  required  to  transmit  a  message  and  also 
because  an  increase  or  decrease  in  efficiency  is  as  likely  to  be  a  result  of 


TELEPHONES  187 

better  or  worse  equipment  as  of  greater  personal  effort  or  effectiveness. 
For  example,  long  telephone  lines  evidently  take  more  effort  to  build 
and  keep  in  repair  than  do  short  ones.  It  is  more  work  to  facilitate  the 
passage  of  messages  when  several  connections  are  necessary,  than  when 
only  one  is  required.  Nevertheless  it  seems  worth  while  roughly  to  pic- 
ture the  results  obtained  under  conditions  as  they  exisi . 

In  the  absence  of  any  more  accurate  criterion,  it  seems  that  the  m< -- 
sage  mile  might  be  used  as  a  reasonable  unit  for  measuring  work  accom- 
plished by  the  telephone  force.  However,  the  number  of  message  miles 
is  not  given  and  must  be  computed.  The  fact  that  millions  of  messages  do 
not  pass  through  an  exchange  vitiates  to  a  degree  I  he  accuracy  of  the  esti- 
mates presented.  Nevertheless,  it  is  not  probable  that  this  unknown 
item  affects  materially  the  relative  comparison  for  different  years,  even 
though  it  undoubtedly  prevents  the  possibility  of  obtaining  an  accurate 
measurement  of  the  absolute  number  of  message  miles  for  any  single  year. 
The  necessary  assumptions  in  computing  the  number  of  message  miles 
are  based  upon  the  fact  that  if  every  telephone  were  connected  through  an 
independent  line  directly  with  the  central  station,  the  average  distance 
traveled  by  each  message  would  approximately  equal  twice  the  number  of 
miles  of  wire  divided  by  the  number  of  telephones.  This  quotient  is  used 
as  a  relative  indicator  of  the  distance  that  each  message  travels  and  is 
probably  serviceable  for  that  purpose  even  though  its  absolute  value  is  of 
little  significance.  When  the  number  of  messages  sent  is  multiplied  by 
this  index,  the  product  gives  some  idea  of  the  total  distance  through  which 
telephone  messages  are  transmitted;  in  other  words,  it  is  a  crude  approxi- 
mation to  the  physical  product  of  the  industry.  The  facts  are  presented 
in  Table  15G. 


L88 


THE    ESTIMATE   BY   SOURCES  OF  PRODUCTION 


TABLE  15G 


A   COMPARISON    FOR    DIFFERENT  YEARS  OF  THE  PHYSICAL  OUTPUT 
PER  EMPLOYEE  IN  THE  TELEPHONE  INDUSTRY 


A 

B. 

Total 

C 

D 

E 

F 

G 

H 

I 

J 

Daily 

Approximate 

messages 
sent;  as 

ex- 
change 

Esti- 
mated 

Thou- 

Mes- 

Twice  the 

number  of 
message  miles 

esti- 
mated 

sands 
of  em- 

number 
of  miles 

Year 

tions  by 

B-C 

millions 
of 

per  em- 
ployee 
(Thou- 
sands) 
E  -F 

Thou- 

from 

Bell 

ployees 

of  wire 

Total 

sand 

Census 

Com- 

messages 

actually 

per  tele- 

in bil- 

per 

data 

(Mil- 

panies 
(Thou- 

CXD 

at  work/ 

phone  ; 

lions 
EX  H 

em- 
ployee 

lions) 

sands) 

690  d 

I  -T-  F 

1907 

12,500  a 

18,130 

12,500  a 

141 

86.7 

4.25ff 

53.1 

368 

1909 

19,925 

670  « 

13,350 

143 

93.4 

4.40 

58.7 

411 

1910 

21,681 

662  • 

14,o53 

159 

90.3 

4.49 

64.4 

405 

1911 

2:;,  484 

657  « 

15,429 

180 

85 . 8 

4.57 

70.5 

392 

1912 

16,753  b 

25,572 

655  d 

16,753  6 

194 

86.4 

4 .  64  * 

77.7 

401 

1913 

26,431 

659 « 

17.418 

21  1 

si.. 5 

4.71 

82 . 0 

384 

1914 

27,049 

669  « 

18,09(1 

215 

84 . 2 

4.77 

86.3 

402 

1915 

25,184 

681 « 

17,150 

21 18 

82 . 5 

4.83 

82.8 

398 

1916 

28,530 

695  e 

19,828 

237 

83.6 

4.88 

96.8 

408 

1917 

21,846  c 

30,845 

709  d 

21,846  < 

263 

83.2 

4 .  92  i 

107  .5 

409 

1918 

31,264 

723 « 

22.(104 

278 

81.3 

4.97 

112.3 

404 

1919 

29,561 

738  e 

21,816 

2SS 

75  7 

5.01 

109.3 

380 

a  Assumed  that  latio  of  messages  to  telephones  was  same  for  non-reporting  as  for 
reporting  companies.  Under  this  assumption,  messages  on  non-reporting  lines  amounted 
to  1,127  millions.     See  U.  S.  Census  of  Telephones,  1907,  p.  14. 

b  Assumptions  same  as  for  1907,  making  the  estimated  number  of  messages  on  non- 
reporting  lines  3,018  millions.    See  U.  S.  Census  of  Telephones,  1912,  p.  13. 

c  U.  S.  Census  of  Telephones,  1917,  p.  10. 

d  Computed. 

■  Mead  from  smooth  curve. 

/See  Table  15E. 

g  U.  S.  Census  of  Telephones,  1907,  p.  14. 

h  U.  S.  Census  of  Telephones,  1912,  p.  13. 

i  U.  S.  Census  of  Telephones,  1917,  p.  10. 

J  If  message  travels  to  central  office  and  to  another  station  the  number  here  recorded 
should  represent  the  approximate  distance  traveled  by  the  message. 


Although  the  number  of  messages  per  employee  has  declined  materially, 
the  trend  of  the  number  of  message  miles  per  employee  has  remained 
nearly  constant.  It  does  not  appear,  therefore,  that  there  is  any  reason  to 
believe  that  the  efficiency  of  telephone  employees  shows  any  downward 
tendency.  This  statement  is  not  controverted  by  the  exceptionally  low 
record  in  1919  since  this  probably  represents  a  temporary  phenomenon 
rather  than  a  permanent  decline  in  output. 


TELEPHONES 


L89 


§  15g.  Telephone  Revenue  Compared  for  Residence  and  Business 

Telephones 

It  is  an  interesting  fact  that,  during  I  he  earlier  part  of  the  decade,  1  here 
was  little  change  in  the  proportion  of  revenue  arising  from  residence  and 
from  business  telephones  respectively.  Since  L915,  however,  business 
telephones  have  slowly  but  steadily  grown  in  relative  importance  as  rev- 
enue producers.    This  change  is  indicated  by  the  data  in  Table  15H. 

TABLE  15H 


PER  CENT  OF  THE  OPERATING  REVENUE  OF  TELEPHONE  COMPANIES 
DERIVED  RESPECTIVELY  FROM   BUSINESS  AND   RESIDENCE  STA 
TIONSa 


Per  cent  derived  from 

Year 

Residence 
telephones 

Business 
telephones 

All  telephones 

1910 

44.18 
■11  35 

Ills 
11  13 
44.27 

11   11 
43  65 
13   16 
L-2  80 
41.96 

55.82 
55.65 

55  82 

55 .  87 
55 .  73 

55.89 

56  :;.". 
56.84 

57  20 
58.04 

inn  nit 

1911 

101)  00 

1912 

1913 

100  00 

100  00 

1914 

inn  00 

1915 

1916     

1917 

100  0  1 

101)   ii  I 

100  00 

1918 

loo  00 

1919 

LOO  00 

a  Computed  from  reports  furnished  by  telephone  companies.     The  percentages  are 
not  exact,  but  are  presumably  approximately  correct. 


§  15h.  Relative  Growth  of  Telephone  Service  and  Population 

It  is  also  of  interest  to  know  whet  her  telephone  service  is  or  is  not 
keeping  pace  with  the  growth  of  our  population.  Table  151  shows  the 
probable  facts  in  this  connection. 


190 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  151 


THE  ESTIMATED  RELATIVE  AMOUNT  OF  SERVICE  PER  PERSON  IN  THE 
CONTINENTAL  UNITED  STATES  RENDERED  BY  THE  TELEPHONE 
INDUSTRY 


Year 

Billions 

of  messages 

sent  a 

Billions 

of  message 

miles  a 

Thousands 
of  persons 

in  the 

Continental 

United  States  c 

Messages 

per 
inhabitant 

Message 

miles  per 

inhabitant 

1907 

12.5 

53.1 

87,321  b 

143 

608 

1909 

1910 

1911 

1912 

13.4 
14.4 
15.4 
16.8 

58.7 
64.4 
70.5 

77.7 

90,370 
92,229 
93,811 
95,338 

148 
156 
164 
176 

650 
699 
752 
815 

1913 

1914 

1915 

1916 

17.4 
18.1 
17.1 

19.8 

82.0 
86.3 
82.8 
96.8 

97,278 

99,194 

100,428 

101,722 

179 
182 
171 
195 

843 

870 
825 
951 

1917 

1918 

1919 

21.8 
22 . 6 
21.8 

107.5 
112.3 
109.3 

103,059 
104,182 
104,847 

212 
217 

208 

1,043 
1,078 
1,042 

a  See  Table  15G. 

6  Statistical  Abstract  of  U.  S.  for  1918,  p.  776. 

c  See  Table  2A. 

Table  151  makes  it  clear  that  telephone  service,  whether  measured  by 
messages  or  message-miles,  is  increasing  very  much  faster  than  popula- 
tion— in  other  words,  we  are,  as  a  nation,  coming  to  depend  more  and 
more  upon  the  telephone  as  a  means  of  communication. 


^ 


CHAPTER  16 
TRANSPORTATION  BY  WATER 

§  16a.  Sources  of  Information 

The  Census  Bureau  covered  this  field  in  the  years  1906  and  1916,  but 
the  financial  statistics  presented  are  far  from  having  the  degree  of  com- 
pleteness desired.  The  records  of  gross  income,  and  of  wages  and  sala- 
ries paid  would,  however,  be  of  great  assistance  in  solving  our  problems 
were  it  not  that  some  of  the  totals  presented  are  evidently  very  far  from  the 
truth.  That  serious  errors  really  exist  is  clear  if  one  compares  the  average 
wages  paid  to  employees  on  land  as  shown  by  the  Censuses  of  1906  and 
1916.  The  Census  record  indicates  that  this  average  wage  declined,  dur- 
ing the  decade,  from  $665  to  $450.  All  other  sources  agree,  however,  in 
showing  that  the  period  was  characterized  by  sharply  rising  wages.  An 
inquiiy  concerning  this  peculiarity  of  the  data  was  sent  to  the  Census 
Bureau  and  elicited  the  reply  that  the  Census  of  1916  was  taken  under 
difficulties  due  to  the  rapid  shift  in  the  personnel  of  the  employees  in  water 
transportation.  The  Census  Bureau  officials,  however,  felt  confident  that 
the  amounts  stated  as  paid  for  wages  and  salaries  are  approximately  cor- 
rect, even  though  the  number  of  employees  may  be  materially  in  error. 
This  belief,  however,  seems  contrary  to  the  facts  for  it  involves  the  assump- 
tion that  the  number  of  employees  diminished  greatly  during  the  decade. 
Overwhelming  evidence  including  that  in  the  Census  report  itself,  proves 
that  the  number  not  only  did  not  diminish  but  actually  increased  to  a 
marked  degree. 

As  a  matter  of  fact,  it  appears  that  the  Census  data,  as  regards  the  num- 
ber of  employees,  approximate  the  truth,  but  that  the  1916  figures,  because 
of  the  failure  to  include  sufficient  allowances  for  board  and  lodging,  under- 
state the  total  pay  of  employees  on  vessels. 

For  the  reasons  just  stated,  the  assumption  has  been  made  that  the  Cen- 
sus figures  for  the  average  number  of  persons  actually  employed  are,  in 
each  instance,  reasonably  accurate,  and  that  the  1906  record  is  a  correct 
picture  of  the  average  earnings  of  land  workers  at  that  date.  It  has  also 
been  assumed  that  the  record  of  gross  earnings  is  reasonably  accurate  for 
each  of  the  Census  years.  These  are  the  only  Census  figures  which  seem 
to  be  adapted  to  our  particular  needs. 

It  has  been  necessary  to  supplement  the  data  thus  obtained  by  material 

191 


192  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

derived  from  the  reports  of  the  Commissioner  of  Navigation  and  of  the 
United  States  Shipping  Board,  and  from  the  fragmentary  information 
concerning  steamship  companies  which  appears  in  Poor's  and  Moody's 
Manuals  of  Corporation  Securities. 

§  16b.  Assumptions  Made 

The  assumption  has  been  made  that  the  share  of  entrepreneurs  and  other 
property  owners  in  the  income  arising  from  transportation  by  water  com- 
prises nothing  but  interest  on  bonds,  dividends  on  stocks  or  distributed 
profits  and  business  savings.  There  are  doubtless  other  payments  mack; 
directly  to  private  parties,  but  of  these  we  have  no  record,  and  they  are 
probably  not  large  enough  materially  to  affect  the  totals.  Similarly,  the 
share  of  the  employees  is  assumed  to  consist  only  of  the  money  wages  and 
salaries  received  plus  an  allowance  for  board  and  lodging  furnished.  Most 
of  the  figures  are  probably  so  inaccurate  that  further  attempts  at  refine- 
ment in  the  assumptions  made  would  be  futile. 

§  16c.  Mode  of  Estimating  Gross  Earnings 

In  estimating  gross  earnings  for  the  intercensal  years,  recourse  has  been 
had  to  the  use  of  a  sequence  of  ratios.  For  each  shipping  company,  the 
reports  of  which  are  shown  in  Poor's  Manual,  the  ratio  of  the  gross  earn- 
ings for  the  given  year  to  the  earnings  for  the  preceding  year  has  been  cal- 
culated and  recorded.  Earnings  for  the  year  1909  have,  however,  been 
compared  with  those  of  1906,  (the  Census  year),  the  years  1907  and 
1908  being  skipped  because,  in  this  study,  there  is  no  attempt  to  derive 
estimates  for  years  preceding  1909.  Few  shipping  concerns  have  pub- 
lished reports  for  each  year  since  1900,  hence  the  derivation  of  an  accurate 
index  of  gross  earnings  is  impossible.  Under  these  circumstances,  we  have 
been  forced  to  take  the  median  of  all  the  ratios  for  a  given  year  as  repre- 
senting the  proportionate  change  in  gross  earnings  from  the  preceding 
period.  These  median  ratios  for  the  different  years  have  been  converted 
into  an  index  on  the  base  190G  by  a  continued  process  of  multiplication 
beginning  with  the  ratio  of  1909  to  1906,  next  applying  thereto  the  ratio 
of  1910  to  1909,  and  so  on.  It  can  be  demonstrated  mathematically  that 
an  index  computed  in  this  manner  tends,  in  the  course  of  time,  to  rise 
above  the  true  index.  This  tendency  has  been  corrected  by  tying  the  in- 
dices thus  derived  to  the  Census  estimates  of  total  gross  earnings;  a  proc- 
ess by  which  the  upward  slope  is  diminished  materially  and  the  error  of 
the  type  just  mentioned  is  presumably  thus  eliminated.  The  final  estimate 
of  gross  earnings  appears  in  Table  16A. 

Having  arrived  at  an  approximate  set  of  totals  of  gross  earnings,  the 
next  step  is  to  utilize  these  estimates  as  bases  for  computing  the  share  of 


TRANSPORTATION    BY   WATER 


193 


TABLE  16A 


THE  ESTIMATED  GROSS  EARNINGS  OF  ALL  PRIVATE  CONCERNS  IN 
THE  CONTINENTAL  EXITED  STATES  ENGAGED  IN  TRANSPORTA- 
TION BY  WATER 


A 

B 

C 

D 

E 

Gross  income 

Index  of 

Esi  imated  gross 

gross  earnings 

earnings  of  all 

Year 

in  thousands 

estimated  fi 

Rati  i  "f 

as  reported 

reports  of  about 

I',  to  C 

c  mcerns 

(Thousands) 
CX  D 

by  the  Census  <* 

twenty 
corporations'' 

1906 

$294,855 

1.00 

294,855  c 

$294,855  a 

1909 

1.00 

280,500  d 

28  1.500 

1910 

1.10 

27.V  700"' 

303,300 

1911 

1.13 

270,800  <* 

306,0  10 

1912 

1.27 

266,100  d 

338,0  i  i 

L913 

1.39 

261,200'' 

:;t;;,ooo 

1914 

1.29 

256,600^ 

331,000 

1915 

1.51 

251,700  d 

380,000 

1916.          . 

563,736 

2.28 

247,300  c 

563,73  i 

1917 

2 .  03 

2(2.  100  d 

192.0  1  1 

1918 

1    79 

237,400  d 

425,000 

1919.     .     . . 

3.05 

232,500  d 

709,00  i 

a  Census  of  Transportation  by  Water,  1910,  page  57. 

6  Lor  derivation,  see  text. 

c  Gomputed  by  division. 

d  Interpolated  along  a  straight  line. 


the  entrepreneurs  and  property  owners  in  the  value  product  of  each  year. 
The  mode  of  attack  is  as  follows: 

§  16d.  The  Share  of  the  Owners  and  Investors 

For  each  shipping  corporation  dealt  with  in  Poor's  or  Moody's  Mama! . 
the  reports  of  which  appear  in  such  form  as  to  make  it  possible,  i  hree  ratios 
have  been  computed  for  each  year;  namely,  the  respective  ratios  of  bond 
interest  paid,  dividends  paid,  and  added  surplus,  to  the  gross  earnings  of 
the  same  year.  In  the  case  of  bond  interest,  a  weighted  median  of  these 
ratios  has  been  ascertained  for  each  year,  large  companies  like  the  Inter- 
national Mercantile  Marine  naturally  having  been  given  more  weighl  than 
small  concerns  like  the  Montauk  Steamship  Company.  The  same  proce- 
dure has  been  followed  in  obtaining  the  yearly  medians  of  the  ratios  of 
surplus  to  gross  earnings.1  In  the  case  of  dividends,  however,  it  was  neces- 
sary to  compute   a    weighted   arithmetic   average   instead   of  a    weighted 

1  The  median  was  used  because  it  eliminated  die  extreme  variations  in  some  of  the  samples. 
These  extremes  were  not  believed  to  lie  representative. 


194 


THE   ESTIMATE   BY  SOURCES  OF  PRODUCTION 


median  of  the  ratios;  for,  in  certain  lean  years,  even  though  a  few  corpora- 
tions paid  very  considerable  dividends,  the  median  ratio  was  zero. 

The  products  obtained  by  multiplying  the  estimated  gross  earnings  for 
the  various  years  by  the  ratios  obtained  in  the  manner  just  described  are 
believed  to  approximate  the  actual  amounts  falling  into  the  respective 
categories.  Table  16B  shows  the  ratios  and  the  estimated  size  of  the  vari- 
ous amounts  which  go  to  make  up  the  share  of  the  entrepreneurs  and  other 
property  owners  in  the  annual  value  product. 

TABLE  16B 

THE  ESTIMATED  SHARE  OF  ENTREPRENEURS  AND  OTHER  PROPERTY 
OWNERS  IN  THE  ANNUAL  VALUE  PRODUCT  OF  THE  PRIVATE  IN- 
DUSTRY OF  TRANSPORTATION  BY  WATER 


Estimated 

gross 
earnings 
in 
thou- 
sands a 

$280,500 
303,300 
306,000 

338,000 

363,000 
331,000 
380,000 
563,736 

492,000 
425,000 
709,000 

Average  ratio  &  to  gross 
earnings  of 

Estimated  share  of  entrepreneurs 
and  other  property  owners  c 

(Thousands) 

Calendar 

Bond 

in- 
terest 
paid 

Divi- 
dends 
paid 

Amounts 
carried 

to 
surplus 

year 

Interest 
on  fund- 
ed debt 

Profits 

dis- 
bursed 

Busi- 
ness 
savings 

Total 

1909 

1910.  .  .  . 

1911.  .  . . 
1912. . . . 

1913 

1914. . . . 
1915. . . . 
1916. . . . 

1917. . . . 
1918. . . . 
1919. .. . 

.0691 
.  0623 
.0503 
.0521 

.0501 
.0502 
.0407 
.0374 

.  0304 
.0293 
.0259 

.  0286 
.  0550 
.  0543 
.0424 

.0378 
.0543 
.0479 
.0418 

.1028 
.1013 

1124 

.0246 
.0835 
.0307 
.0725 

.060S 

—  .0021 

.0649 

.1189 

.0463 
.0699 
.0166 

$19,380 
18,900 
15,400 
17,620 

18,200 
16,600 
15,470 
15,000  d 

14,960 
12,460 
15,000  <i 

$  8,025 
16,680 
16,620 
14,320 

13,720 
17,983 
18,203 
23,550 

50,603 
43,050 
79,703 

$  6,900 

25,320 

9,400 

24,510 

22,070 

—695 

24,660 

67,030 

22,790 
29,720 
11,770 

$34,305 
60,900 
41,420 
53,450 

53,990 
33,  S85 

58,330 
105,580 

88,350 

85,230 

106,470 

a  See  Table  16A. 

b  For  mode  of  derivation,  see  text. 
c  Gross  earnings  multiplied  by  the  appropriate  ratios. 

d  Arbitrarily  assumed,  because  original  products  seem  too  large,  since  it  is  unlikely 
that  bond  interest  would  change  greatly  from  year  to  year. 

While  the  share  of  the  entrepreneurs  and  other  property  owners  has 
increased  greatly  in  terms  of  dollars,  the  change  in  their  ability  to  secure 
commodities  has  been  somewhat  less  striking.  That  such  is  the  case  is 
made1  clear  by  a  study  of  Table  16C  in  which  the  current  income  of  these 
classes  has  been  converted  into  terms  of  purchasing  power  at  the  price 
level  of  1913. 


S 


TRANSPORTATION   BY   WATER 


195 


TABLE  16C 


THE  RELATIVE  PURCHASING  POWER  IN  TERMS  OF  CONSUMPTION 
GOODS  OF  THAT  PART  OF  THE  INCOME  OF  ENTREPRENEURS  AND 
OTHER  PROPERTY  OWNERS  DERIVED  FROM  TRANSPORTATION  BY 
WATER 


Disbursements  to  entrepreneurs 
and  other  property  owners 

Business  savings 

Profits 

Index 

Amount  of 

Calendar 

and 

of  prices 

Purchasing 

construc- 

year 

interest 

of  goods 

power 

Amount  in 

Index  of 

tion  pur- 

on funded 

consumed 

.it  prices 

t  bousands 

c  instruc- 

chasable 

debt  a 

by 

of  1913 

of  dollars  c 

tion  costs  <* 

at  prices 

(Thou- 

wealthier 

(Thousands) 

of  1913 

sands) 

families'' 

(Thousands) 

1909 

$27,405 

.964 

$28,428 

$  6,900 

.927 

$  7.11:; 

1910 

35,580 

.  982 

36,232 

25,320 

953 

26,56  1 

1911 

32,020 

.989 

32,376 

9,400 

.  9 15 

9,947 

1912 

31,940 

.999 

31,972 

21,510 

.983 

24,934 

1913 

31,920 

1.000 

31,920 

22,070 

1.000 

-•-'.070 

1914 

34,580 

1.011 

34,208 

—695 

.960 

-721 

1915 

33,670 

.999 

33,701 

24,660 

.992 

24,859 

1916 

38,550 

1.081 

35,661 

67,030 

1.194 

56,139 

1917 

65,560 

1.225 

53,518 

22.790 

1.473 

15.472 

1918 

55,51n 

1.406 

39,481 

29,720 

1.499 

19,827 

1919 

91.700 

1.648 

57, Hil 

11,770 

1  5  17 

7,370 

a  Combination  of  the  items  in  two  columns  of  Table  16B. 

b  An  average  of  the  indices  for  families  spending  respectively  85,003  and  S25,033 
per  annum  for  consumption  goods. 

c  See  Table  16B. 

d  An  average  of  the  U.  S.  Bureau  of  Labor  Statistics  indices  for  building  lab  >r,  build- 
ing materials,  and  metals,  the  weights  used  being,  in  the  order  named,  3,  1,  and  2. 

§  16e.  The  Share  of  the  Employees 

The  next  step  necessary  is  to  ascertain  the  share  of  the  product  going  to 
the  employees  in  each  year  of  the  period.  This  end  can  apparently  best  be 
attained  if  the  employees  are  first  divided  into  the  two  classes  used  by  the 
Census,  namely  those  working  on  land  and  those  employed  on  vessels. 

It  seems  clear  that  the  number  of  men  required  about  the  docks  must 
vary  in  proportion  to  the  amount  of  shipping  to  be  handled.  The  criterion 
which  has  suggested  itself  as  being  the  besi  adapted  to  measuring  accu- 
rately shipping  activity  at  our  ports,  is  the  tonnage  of  vessels  entered  and 
cleared.  This  tonnage  is  recorded  for  the  foreign  trade  but  not  for  the 
coastwise.  In  order  to  give  some  weight  to  the  latter,  the  plan  has  been 
adopted  of  using  a  combination  index  constructed  by  adding  to  the  sum 
of  the  tonnage  in  the  foreign  trade  entered  and  cleared,  one-fifth  of  the 
freight  tonnage  passing  through  the  Sault  Ste  Marie  Canal  and  five  times 


196 


THE   ESTIMATE  BY   SOURCES  OF  PRODUCTION 


the  tonnage  of  the  vessels  engaged  in  the  coastwise  trade.  The  "Soo" 
*  Janal  traffic  is  weighted  low  because  the  handling  of  the  grain  and  iron  ore, 
which  constitutes  the  bulk  of  the  tonnage,  requires  relatively  little  labor. 
The  weighting  for  coastwise  vessels  assumes  that  there  are  on  the  average 
five  cargo  handlings  per  year.  However,  the  three  indicators  used  vary  so 
similarly  that  the  relative  size  of  the  weights  assigned  is  not  a  matter  of 
great  importance.    The  foreign  trade  figures  for  the  period  preceding  1918 

TABLE  16D 

THE    ESTIMATED    NUMBER    AND    EARNINGS    OF    LAND    EMPLOYEES 
ENGAGED  IN  THE  INDUSTRY  OF  TRANSPORTATION  BY  WATER 


A 

B 

C 

D 

E 

F 

G 

Calendar 

year 

Number  at 

work  as 

reported 

by  the 

Census 

Index  of 

tonnage 

loaded 

and 

unloaded  b 

Ratio  of 
B  toC 

Estimated 

number 

at  work 

CX  D 

Estimated 

average 

annual  pay 

Estimated 
total  wages 
and  salaries 
EX  F 

1906 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

47,419  a 

83,581  a 

109.8 

123.0 
128.5 
133.2 
145 . 6 

154.2 

144.4 
144.9 

153.2 

146.7 
144.6 

432  c 

475  d 
48S  d 
500  d 
512  & 

522  d 
530'' 
538  d 
545  e 

552  d 
556  d 

47,419  a 

58,450 
62,750 
66,592 
74,480 

80,460 
76,540 
77,980 
83,581  a 

80,900 
80,400 

$    663^ 

664  e 

665  « 
666 « 

698  e 

732  e 
732  e 
731  « 

808  e 
840  e 

1,012  « 

$31,456  a 

38,800 
41,720 
44,360 

52,000 

58,900 
56,050 
57,030 
67,560 

67,940 
81,400 

a  U.  S.  Census  of  Transportation  by  Water,  1916,  p.  59. 
b  For  mode  of  derivation,  see  the  text . 
c  Computed  by  division. 
d  Interpolated  along  a  smooth  curve. 

e  Assumed  to  vary  from  the  1906  wage  in  the  same  proportion  as  did  the  daily  wages 
for  longshoremen.    See  text  for  explanation. 

are  reported  for  years  ending  June  30,  hence  the  pairs  of  fiscal  years  have 
been  averaged  in  each  case  to  give  an  estimate  for  the  calendar  year  on 
which  they  overlap.  These  estimates  for  the  calendar  years  have  been 
combined  with  the  other  indicators  in  deriving  the  index  used. 

It  has  been  assumed  that  the  employees  on  land  received,  on  the  aver- 
age in  1906,  the  $605,  reported  by  the  Census  of  Transportation  by  Water. 
This  amount  has  been  varied  for  the  other  years  on  the  basis  of  the  change 
in  the  daily  rates  of  pay  at  New  York  City  from  1906  to  1914  l  and  since 

■  Estimated  from  data  given  on  page  80  of  The  Longshoreman,  by  Charles  B.  Barnes. 


TRANSPORTATION   BY  WATER  197 

that  date,  in  the  daily  rate-  for  all  sections  of  our  coast.1    The  New  York 
City  rates  have  been  weighted  more  heavily  than  the  others  because  of  the 
importance  of  this  port . 
The  next  necessary  step  in  the  procedure  is  to  estimate  the  wages  of  the 

employees  on  vessels.  Now  it  seems  probable  that  the  Census  figures,  as 
to  the  number  of  men  employed,  are  approximately  correct.  The  inter- 
polation for  the  intercensal  years  has  been  on  the  basis  of  the  reported 
tonnage  of  the  American  merchant  marine,  which  seems  to  constitute  a 
satisfactory  criterion. 

In  computing  the  wage  payments,  it  was,  for  reasons  previously  stated, 
found  necessary  to  ignore  the  Census  figures.  Fortunately,  the  Annua! 
Reports  of  the  United  States  Commissioner  of  Navigation  give  detailed 
information  each  year  concerning  the  wages  paid  to  different  classes  of 
workers.  From  these  reports,  a  median  of  monthly  wages  paid  to  able- 
bodied  seamen  on  American  steamships  has  been  computed  for  each  year. 
To  this  median  wage  has  been  added  in  each  instance  an  allowance  for 
board  and  lodging,  this  allowance  having  been  made  to  vary  in  proportion 
to  the  food  index  computed  by  the  United  States  Bureau  of  Labor  Sta- 
tistics. 

On  pages  188-9  and  in  Chapter  IX  of  H.  B.  Drury's  report  on  Marine 

and  Dock  Labor,  statistics  are  given  which  enable  one  to  compute,  with  a 

reasonable  degree  of  accuracy,  the  ratio  of  the  average  pay  of  the  entire 

ship's  crew,  including  officers,  to  the  average  pay  of  able-bodied  seamen. 

By  applying  this  ratio,  an  estimate  has  been  made  of  the  average  annual 

pay  of  workers  on  vessels.    The  final  estimates  appear  in  Table,  ltd'. 

1  From  fhr  report  dated  December  31,  1918,  of  The  National  Adjustment  Commission 
of  the  lr.  S.  Shipping  Board,  p.  21,  and  from  p  150 of  Bulletin  l'7  1  of  the  United  States  Bun  au 
of  Labor  Statistics  on  The  Union  Scales  of  Wages  and  Hours  »f  Labor,  May  15,  191!). 


198 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  16E 


THE  ESTIMATED  NUMBER   AND   EARNINGS  OF  THE    EMPLOYEES  ON 
THE  VESSELS  OF  THE  AMERICAN  MERCHANT  MARINE 


A 

B 

C 

D 

E 

F 

G 

H 

I 

Number 

reported 

by  U.  S. 

Census 

Tonnage 
of  mer- 
chant 
marine 
of  the 
U.  S.6 
(Thou- 
sands) 

Ratio  of 
B  to  C 

Esti- 
mated 
number 
of  men 
actually 
at  work 
CXD 

Monthly  wages  of 

able  seamen  on 

American  steam 

vessels 

Esti- 
mated 
average 
annual 
earnings 
of  all 
em- 
ployees'? 

Estimated 

total 
wages  and 

Year 

Median 

money 

wagee 

Esti- 
mated 
wage  in- 
cluding 
board 

and 
lodging 

salaries  in 
thousands 

paid  to 
employees 
on  vessels 

EXH 

1906 

1909 
1910 
1911 
1912 

1913 

1914 
1915 
1916 

1917 
1918 
1919 

140,929" 
153,301a 

6,675 

7,389 
7,508 
7,639 
7,714 

7,887 
7,929 
8,389 
8,470 

8,871 

9,925 

12,907 

02111c 

. 02019 d 
.01990'/ 
. 01958 d 
. 01930 d 

.01900'/ 

01X70'/ 

. 01839 d 

,01810c 

. 01780 d 
.01752'/ 
.01722 d 

140,929 

149,200 
149,400 
149,600 
148,900 

149,900 
148,300 
154,300 
153,301 

157,900 
173,900 
222,200 

$25.84 

28.75 
30 .  00 
30.00 
30 .  00 

30.00 

30.00 
35.00 
47.60 

58.85 
68.75 
75.00/ 

$45.24 

51.72 
54.02 
53 .  73 
55.74 

55 .  74 

56.37 
61.25 

77.15 

96.73 
112.17 
123.53/ 

$    788 

901 
941 
936 
971 

971 

982 

1,067 

1,344 

1,685  ' 

1,954 

2,152/ 

$111,000 

134,400 
140,600 
140,000 
144,520 

145,500 
145,700 
164,600 
203,100 

263,000 
339,800 

478,200/ 

a  U.  S.  Census  of  Transportation  by  Water,  1916,  p.  59. 

6  Statistical  Abstract  of  U.  S.  for  1919,  p.  361. 

c  Computed  by  division. 

d  Interpolated  along  a  straight  line. 

f  Medians  of  wages  for  some  50  classes  of  able  seamen.  Data  from  Annual  Reports 
of  the  U.  S.  Commissioner  of  Navigation.  The  items  recorded  are  the  averages  of 
medians  for  the  pairs  of  fiscal  years  overlapping  on  the  calendar  year. 

/  Preliminary  figures. 

o  Items  in  column  G  multiplied  by  17.42.    For  explanation,  see  text. 


<* 


TRANSPORTATION   BY   WATER 


L99 


§  16f.  The  Net  Value  Product  and  Its  Division 

We  are  now  prepared  to  estimate  the  value  producl  of  the  industry  of 
Transportation  by  Water.    The  figures  appear  in  Table  16F. 


TABLE  16F 


THE  ESTIMATED  TOTAL  VALUE  PR<  (DUCT  OF  THE  INDUSTRY  OF  TR  VXS 
PORTATION  BY  WATER  AND  THE  PER  CENT  THEREOF  GOING  TO 
THE  EMPLOYEES 


Calendar 
year 

Total  value 

product  a 

(Thousands) 

Total  share  of 

entrepreneurs 

and  investors b 

(Thousands) 

Total  wages  and 
salaries  paid  <• 
(Thousands) 

Per  cent  of 
value  product 
going  to 
employees 

1909 

$207,505 
243,220 
225,780 
252,970 

258,390 
235,635 
279,960 
379,240 

422,290 
506,430 

$  34,305 
60/.  100 
£1,420 
56,450 

53,990 

33,885 

58,330 
105,580 

88,350 
85,230 

$173,200 
182,320 
184,360 

196,520 

204,400 
201,750 
221,630 
273,660 

333,940 

421,200 

83 . 5 

1910 

1911 

75  0 
81.7 

1912 

1913 

1914 

77.7 

79.1 
85.6 

1915 

1916 

1917 

1918 

79.2 

72.2 

79.1 
83.2 

a  Sum  of  the  two  following  columns. 

b  See  Table  16B. 

c  Sum  of  the  last  column  in  Table  16D  and  the  last  column  in  Table  16E. 

It  is  clear  that  the  employees  in  this  line  of  work  receive  a  high  percent- 
age of  the  value  product  as  compared  to  those  in  many  of  the  other  fields. 
No  tendency  is  apparent  for  their  relative  share  either  to  increase  or  dimin- 
ish as  the  years  pass. 


§  16g.  The  Average  Annual  Earnings  of  Employees 

The  usual  estimates  of  the  numbers  of  men  attached  to  the  industry. 
the  fluctuations  in  the  average  money  earnings,  and  the  purchasing  power 
of  these  earnings  on  the  basis  of  the  prices  of  1913  appear  in  Table  16G. 


200 


THE   ESTIMATE   BY   SOURCES  OF  PRODUCTION 


TABLE  16G 


THE  PURCHASING  POWER  OF  THE  AVERAGE  ANNUAL  EARNINGS  OF 
THE  EMPLOYEES  IN  THE  PRIVATE  INDUSTRY  OF  TRANSPORTATION 
BY  WATER 


A 


Calendar 

3  ear 


1900 . 

1909. 
1910. 
1911. 

1912 

1913 . 
1914 
1915. 
1916. 

1917. 
1918. 


B 


Estimated 
average 

number  of 

employees 

actually 

at  work  c 


188,348  a 

207,650 
212,150 
216,192 
223,380 

230,360 
224,840 
232,280 
236,882  a 

238,800 
254,300 


C 


Estimated 
fraction  of 
persons  at- 
tached to 
industry 
actually  at 
work  <l 


.927 
.917 
.906 
.919 

.930 
.899 
.922 
^936 

.934 
.  925 


D 


Estimated 

number  of 

employees 

normally 

attached  to 

the  industry 

B 

C 


224,002 
231,352 
238,623 

243,01  is 

247,699 
250,100 
251,931 
253,079 

255,675 
275,000 


E 


Total 

wages  and 

salaries 

paid  b 

(Thousands) 


$142,456 

173,200 
182,320 
184,360 
196,520 

204,400 
201,750 
221,630 
273,660 

333,940 
421,200 


F 


Average 
annual  earn- 
ings per 
employee 
attached  to 
industry 
E 
D 


I  773 
788 
773 

808 

825 

807 

880 

1,081 

1,306 

1,532 


G 


Index  of 
prices  of 
goods  con- 
sumed by 
manual  and 

clerical 
workers  e 


.955 
.978 
.984 
.994 

1.000 
1.01 
1.03 
1.10 

1.29 
1.58 


H 


Purchasing 

power  of 

earnings  at 

prices  of 

1913 

F 

G 


$    810 

806 

785 
813 

825 
799 
854 
983 

1,012 
969 


a  U.  S.  Census  of  Transportation  by  Water,  1916,  p.  59. 
b  See  Table  16F. 

c  The  sum  of  the  items  in  Column  E,  Table  16D,  and  in  Column  E,  Table  16E. 
d  Estimated  in  §  2d. 

e  The  Bureau  of  Labor  Statistics  index  carried  back  by  means  of  a  special  study 
made  by  this  Bureau;  see  §  2b. 


Table  16G  records  clearly  a  marked  gain  in  the  economic  welfare  of  the 
employees  in  the  years  1915,  1916,  and  1917.  The  other  years  of  the  period 
show  no  changes  of  moment  in  this  respect.  On  the  whole,  the  employees 
were  evidently  veiy  much  better  off  in  1918  than  in  1909. 


X 


TRANSPORTATION    BY   WATER 


201 


§  16h.  The  Tonnage  of  the  American  Merchant  Marine 

The  final  step  is  to  note  the  changes  in  the  supply  of  American  merchant 
shipping  which  have  occurred  during  the  years  under  consideration. 
Table  16H  sets  forth  the  facts  as  indicated  by  the  official  reports. 

TABLE  16H 

THE  TONNAGE  OF  THE  AMERICAN  MERCHANT  MARINE  AS  COMPARED 
TO  THE  POPULATION  OF  THE  CONTINENTAL  UNITED  STATES 


Year 


1909. 
1910. 

1911  . 
1912. 


L913. 

1914. 

1915 

1916. 

1917. 
1918. 
1919. 


Tonnage 

afloat  a 


7,388,755 
7,508,082 
7,638,790 

7,714,  is;; 

7,886,551 
7,928,688 
8,389,429 

8,469,649 

8,871,037 

9,924.r»  is 

12,907,300 


Population 

in  thousands  h 


90,370 

!  12,229 
93,811 
95,338 

97,278 

99,194 

100,428 

101,722 

L03.059 

104, 182 
101,847 


Tonnage  per 

capita 


0.0MS 
.081  1 
.081  1 
.0809 

.0X11 
.0799 
.0835 
.0833 

.0861 
.0953 
.1231 


a  Statistical  Abstract  of  the  U.  S.  ,  1919,  p.  361. 
b  Sec  Table  2A. 


This  table  shows  that  the  merchant  marine  just  about  kept  pace  with 
population  until  the  beginning  of  the  European  War.  A  moderate  rela- 
tive increase  in  1915  and  1917  was  followed  by  a  large  growth  in  1918  and 
a  tremendous  expansion  in  1919.  The  reasons  for  this  development  are 
too  well  known  to  require  comment. 


CHAPTER  17 
BANKING  x 

§  17a.  Sources  of  Information 

The  data  for  this  chapter  are  derived  mainly  from  the  Annual  Reports 
of  the  Comptroller  of  the  Currency.  Unfortunately,  the  reports  for  banks 
other  than  national  are  incomplete  in  many  respects  and,  even  in  the  case 
of  national  banks,  we  have  extremely  meager  information  concerning  the 
number  of  employees.  Under  the  circumstances,  the  results  obtained  by 
this  study  must  be  considered  as  only  moderately  near  the  truth. 

§  17b.  The  Composition  of  the  Net  Value  Product 

The  value  product  of  the  banking  industry  is  distributed  in  the  form  of 
dividends  to  stockholders,  additions  to  surplus,  interest  to  depositors,  and 
wages  to  employees.  There  is  also  a  relatively  small  item  representing 
donations  to  the  Red  Cross.  Most  of  the  interest  paid  on  deposits  other 
than  savings  doubtless  is  paid  to  business  enterprises  and  is  taken  into 
account  in  the  study  of  the  various  fields  of  industry.  It  has  been  arbi- 
trarily assumed  that  an  increase  of  20  per  cent  in  the  interest  paid  by  sav- 
ings banks  will  be  sufficient  to  cover  those  interest  payments  made  to 
individuals  which  are  utilized  to  defray  living  expenses  or  which  enter  into 
their  private  as  opposed  to  their  business  resources. 

§  17c.  Net  vs.  Gross  Dividends 

A  large  part  of  the  amount  paid  in  dividends  by  the  bank  consists  merely 
in  amounts  passed  along  which  are  received  from  other  industrial  fields  as 
returns  for  investments  therein.  Since  such  amounts  have  already  been 
counted  once,  they  must  evidently  be  deducted  here.  The  manner  of  esti- 
mating the  net  dividends  originating  in  the  banking  field  appears  in  Table 
17A. 

§  17d.  Undivided  Profits 

The  net  gains  of  the  banking  industry  have  to  a  large  extent  been  kept 
in  the  business  as  surplus  or  undivided  profits.    The  amounts  of  these  items 

1  The  figures  cited  in  this  report  are  those  given  for  all  banks  and  include  banks  in  the 
[sland  Possessions.  Their  business  is  less  than  half  a  per  cent,  of  the  whole  and  is  probably 
much  less  than  the  business  of  non-reporting  banks  in  the  Continental  U.  S.  Under  these 
circumstances,  it  has  been  deemed  unnecessary  to  take  the  trouble  to  deduct  the  figures 
for  the  Island  banks  from  the  summaries. 

202 


BANKING 


203 


TABLE  17A 


AX  ESTIMATE  OF  THE  AMOUNT   OF  THOSE  DIVIDENDS  PUD  BY  THE 
HANKS  OF  THE  UNITED  STATES  WHICH  ORIGINATE  IN  THE  BANK 
ING  BUSINESS 


A 

B 

C 

D 

E 

F 

G 

H 

I 

J 

Calen- 
dar 
year 

Loans 

r< 

(Mi 

discounts  and 
^discounts 
ddlc  (if  year) 

Dividends  paid  by 

Face 
value 
of  cor- 
porate 
securities 
held  by 
banks  c 
(Millions) 

Esti- 
mated 
average 
yield  on 
securities 
(Rate) 

Estimated 

income 

from 

securities 

(Thousands 

Gx  H 

Estimated 
dividends 
originat- 

Of 
national 
banks  a 

(Thou- 
sands) 

Of  all 
banks e 
(Thou- 
sands) 

Ratio 

ot 

C  toB 

2.244 
2.294 
2.314 

2.333 

2.371 
2.37S 
2.361 
2.320 

2  299 
2.219 
2.295 

National 
banks  6 
(Thou- 
sands) 

All  banks* 
(Thou- 
sands) 

D  X  E 

ing  in 
banking 
(Thou- 
sands) 
F  — I 

1909 
1910 
1911 
1912 

1913 
1914 
1915 
1916 

1917 
1918 
1919 

x.-,,o:;i; 
5,430 
5,611 
5,954 

6,143 
6,430 
6,660 
7,679 

8,958 
10,148  rf 
1 1,024  d 

$11,303 
12,459 

12,:  is:; 
13,892 

14,568 
15,2XX 
15,722 
17,812 

20.594 
22,515 
25,301 

$99,446 
110,292 
117,493 
120,103 

120,427 
117,327 
114,216 
120,131 

127,65s 
132, (is:; 
141,600 

$223,157 
253,(1  111 
271,879 
280,200 

285,532 
279,004 
269,664 
278,704 

293,486 
291,121 
325,300 

$2,669 
2,670 
3,029 

3.218 

3,275 
3,357 
3.417 
3,957 

4,257 
4,147 
4,234 

.05 
.05 
.05 
,05 

.05 
.05 
.05 
,05 

.05 

05 
.052 

$133,455 

13V,,  is! 
151,151 
160,907 

163,735 
1(57,869 

170,s:;_> 

197,855 

212.S5S 

207,:;  I1 1 
220,151 

SS9.702 
119,529 
120,428 
119,293 

121,797 

111,135 

98,832 

80,849 

80,628 
87,075 

105.119 

a  Annual  Report  of  the  Comptroller  of  the  Currency,  1919,  Volume  II,  pp.  2.)2-303. 

b  Average  of  pairs  of  fiscal  years;  Annual  Report  of  the  Comptroller  of  the  Cur- 
rency, 1920,  Volume  I,  p.  49. 

«  This  item  has  been  estimated  by  a  series  of  rather  complex  calculations  from  the 
various  Annual  Reports  of  the  United  States  Comptroller  of  the  Currency.  Since  1915, 
the  reports  have  been  incomplete  and  the  errors  may  therefore   be  considerable. 

<i  Annual  Report  of  the  Comptroller  of  the  Currency,  1919.    Volume  I,  p.  175. 

«  Ibid.,  p.  186. 


arc  recorded  in  Table  17B  as  are  also  their  approximate  values  at  the  1913 
price  level,  were  they  distributed  to  the  stockholders. 

The  striking  fact  brought  out  by  Table  17B  is  the  very  rapid  gain  in  bank 
surplus  during  the  latter  part  of  the  decade,  this  gain  being  accompanied 
by  a  considerable  decline  in  the  purchasing  power  of  the  net  dividends  dis- 
bursed and  of  the  interest  paid  on  savings  deposits.1  Obviously,  this 
increase  in  surplus  account  has  materially  strengthened  the  financial  situ- 
ation of  the  banks. 

'  See  Table  17C. 


204 


THE   ESTIMATE  BY   SOURCES  OF   PRODUCTION 


TABLE  17B 


THE  GROWTH  IN  SURPLUS  AND  UNDIVIDED  PROFITS  AND  THE  TOTAL 
ANNUAL  GAIN  OF  THE  STOCKHOLDERS  OF  ALL  BANKS  IN  THE 
UNITED  STATES 


A 

B 

C 

D 

E 

F 

Business  savings 

Dividends 
originating  in  the 
banking  busi- 
ness c 
(Thousands) 

Total  share  of 

stockholders, 

including 

business  savings 

(Thousands) 

B  +  E 

Year 

Thousands 
of  dollars  « 

Index  of 

wholesale 

prices  b 

Value  at 

prices  of  1913 

B 

C 

1909 

1910 

1911 
1912 

$  95,500 

115,500 

106,850 

92,100 

.97 

.99 

.95 

1.01 

$  98,453 

116,666 

112,474 

91,188 

$  89,702 
119,529 
120,428 
119,293 

$185,202 
235,029 
227,278 
211,393 

1913 

1914 

1915 

1916 

55,150 

61,450 

68,750 

123,500 

1.00 
1.00 
1.01 
1.24 

55,150 
61,450 
68,069 
99,596 

121,797 
111,135 

98,832 
80,849 

176,947 

172,585 
167,582 
204,349 

1917 
1918 
1919 

152,550 
194,100 
333,600 

1.76 
1.96 
2.12 

86,676 

99,031 

157,358 

80,628 

87,075 

105,149 

233,178 
281,175 
438,749 

a  Annual  Report  of  the  Comptroller  of  the  Currency,  1919,  Vol.  I,  p.  18. 
6  See  p.  15  of  Bulletin  269,  of  the  U.  S.  Bureau  of  Labor  Statistics. 
e  See  Table  17A,  Column  J. 

§  17e.  The  Purchasing  Power  of  Dividends  and  Interest 

The  next  step  necessary  is  to  measure  the  purchasing  power  at  a  con- 
stant price  level  of  the  dividends  originating  in  banking  and  of  the  interest 
paid  on  savings  accounts.    This  computation  appears  in  Table  17C. 


^ 


BANKING 

TABLE  17C 


20/ 


AN  ESTIMATE  OF  THE  PURCHASING  POWER  OF  DIVIDENDS  ORIGINAT- 
ING IN  THE  BUSINESS  AND  INTEREST  PAID  ON  SAVINGS  DEPOSITS 
BY  THE  BANKS  OF  Till-]  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

Purchasing 

Cal- 

Dividends 

Index  of 

Purchasing 
power  of 

Interest 

Index  of 
prices  of 
goods  con- 
sumed by 
working 
classes  ■' 

power  of 

interest 

en- 
dar 

year 

originating 
in  banking0 
(Thou- 
sands) 

prices  oi 
goods  con- 
sumed by 

wealthier- 
classes  b 

dividends 

at  prices 

of  1913 

B 

C 

on  savings 
deposits  r 

(Thou- 
sands) 

on  savings 

deposits  at 

prices  of 

1913 

E 

T 

1909 

$  89,702 

.  965 

$  92,955 

$133,680 

.  955 

8139,979 

1910 

119,529 

.983 

121,596 

1  16,568 

.978 

1  19,865 

1911 

120,428 

.990 

121,611 

151.920 

.984 

154,390 

1912 

119,293 

1.000 

119,293 

160,660 

.994 

161,630 

1913 

121,797 

1.000 

121,797 

170,749 

1.000 

170,749 

1914 

111,135 

1.011 

109,926 

178,441 

1.01 

176,674 

1915 

98,832 

.999 

98,931 

181,133 

1.03 

175,857 

1916 

80,849 

1.081 

74,791 

185,070 

1.10 

168,245 

1917 

80,628 

1.225 

65,819 

197,600 

1.29 

153, 178 

1918 

87,075 

1 .  406 

61,931 

199,191 

1.58 

126,070 

1919 

105,119 

1.648 

63,804 

214,747 

1   773 

121,121 

«  See  Table  17A,  Column  J. 

b  Average  of  indices  for  classes  spending  annually  for  consumption  goods  $5,003 
and  $25,009  respectively. 

f  The  amounts  in  this  column  are  derived  from  the  Annual  Reports  of  the  Comp- 
troller of  the  Currency  by  multiplying  the  reported  deposits  in  savings  banks  by  1.2, 
in  order  to  allow  for  savings  in  other  banks,  and  by  assuming  that  the  interest  paid 
amounted  to  3  per  cent  of  these  deposits.  To  this  sum  has  been  added  the  interest 
on  postal  savings  deposits.  The  last  named  quantity  is  reported  for  1920  and  estimated 
for  earlier  years  on  the  basis  of  deposits.  Colonel  M.  C.  Rorty  suggests  that  the  ratio 
of  1.2  is  low  for  recent  years  as  savings  in  other  banks  have  been  increasing  rapidly  of 
late. 

d  Bureau  of  Labor  Statistics  index  carried  back  for  earlier  years — see  Table  2C. 

§  17f.  Employees,  Salaries,  and  Wages 

According  to  a  special  report  made  in  1918,  the  National  banks  of  the 
United  States  employed  in  that  year  8(5,845  persons.  If  the  employees  in 
other  banks  were  as  numerous  in  proportion  to  the  volume  of  loans  and 
discounts,  it  follows  that  all  banks  gave  employment  to  about  192,500 
persons  in  1918  or  about  6.66  employees  per  bank.  The  estimates  of  the 
numbers  employed  in  the  other  years  are  made  on  the  basis  that  in  each 
year  the  average  bunk  employed  6.66  persons,  that  being  the  ease  in 
1918. 

Presumably,  unemployment  is  not  an  important  factor  in  the  banking 


200 


THE  ESTIMATE  BY  SOURCES   OF   PRODUCTION 


field,  hence  no  distinction  has  been  made  between  the  number  of  employees 
actually  at  work  and  the  number  attached  to  the  industry. 

The  total  amounts  paid  for  salaries  and  wages  by  National  banks  have 
been  reported  by  the  Comptroller  of  the  Currency  since  1917.  It  has  been 
assumed  that,  previous  to  that  date,  these  payments  varied  in  proportion 
to  the  total  expenses  of  the  same  class  of  banks.  It  has  further  been 
assumed  that  the  ratio  of  salary  and  wage  payments  to  the  volume  of 
combined  loans  and  discounts  was  the  same  for  other  banks  as  for 
National  banks.  The  figures  resulting  from  these  assumptions  and  cal- 
culations appear  in  Table  17D. 

TABLE  17D 

AN   ESTIMATE   FOR   THE    BANKS   OF    THE   UNITED   STATES   OF    THE 
NUMBER  OF  EMPLOYEES  AND  THE  WAGES  AND  SALARIES  PAID 


A 

B 

C 

D 

E 

F 

Calendar 

year 

Salaries 
and  wages 
paid  by  all 
banks  a 
(Thou- 
sands) 

Number  of 
employees 
attached 
to  industry  a 

Average  an- 
nual earnings 
per  employee 
B 

C 

Index  of 
prices  of 

articles  con- 
sumed by 

manual  and 
clerical 
workers 

Purchasing 
power  of  an- 
nual earnings 
at  prices  of 
1913 
D 

E 

1909 

1910 
1911 
1912 

1913 
1914 
1915 
1916. 

1917 

1918 

1919 

$115,400 
122,700 
136,900 
148,900 

160,900 
164,100 
183,400 
214,300 

230,200 
281,300 
361,650 

149,900 
153,900 
162,300 
167,860 

173,000 
178,150 
180,300 
183,200 

186,000 
192,500 
194,000 

$    770 
797 
843 

887 

930 

921 

1,017 

1,170 

1,238 
1,461 

1,864 

.955 

.978 
.984 
.994 

1.00 
1.01 
1.03 
1.10 

1.29 
1.58 
1.773 

$  807 
815 
857 
892 

930 

912 

987 

1,064 

959 

925 

1,051 

a  For  mode  of  derivation,  see  the  text. 

The  figures  in  Column  F  of  Table  17D  indicate  that  the  economic  condi- 
tion of  the  employees  has  improved  noticeably  during  the  decade.  How- 
ever, the  reader  is  warned  against  attaching  great  importance  thereto,  as 
the  assumptions  made  are  too  numerous  to  permit  of  the  results  being 
anything  more  than  rough  approximations  to  the  truth. 

§  17g.  The  Share  of  Salaries  and  Wages  in  the  Value  Product 

It  is  now  possible  for  us  to  estimate  the  fraction  of  the  value  product  of 
the  banking  industry  going  to  the  employees.    This  is  done  in  Table  17E. 


S 


BANKING 


207 


TABLE  17E 


AN  ESTIMATE  OF  THE  DIVISION  OF  THE  NET  VALUE  PR(  >DU<  IT  ARISING 

FROM  BANKING 


A 

B 

C 

D 

E 

F 

G 

Calendar 
year 

Share  of 

stock- 
holders a 
(Millions) 

Share  of 
holders  of 

savings 
accounts  '> 
Millions) 

Share  of 
Red  Cross 

(Millions) 

Shire  of 

employees  d 

(Millions) 

Total  nel 
value  product 

(Millions) 
B+C+D+E 

Per  cent 
of  value 

product 
going  to 
employees 

ion] : 

F 

1909 
1910 
1911 
1912 

1913 
1914 

1915 

1916 

1917 
1918 
L919 

$185 
235 
227 
211 

177 
173 

11  iS 
204 

233 

281 
439 

$134 

147 
152 
161 

171 
179 
181 
185 

198 
199 
215 

Ml 

0 
0 
0 

0 
0 
0 

0 

0 
5 
3 

$115 
123 
137 
149 

161 
164 
183 

214 

230 
281 
362 

S    434 
501 
516 
521 

509 
515 

532 
604 

661 

767 

1,018 

'     26.6 
24.3 
26.5 
28.6 

31.6 

31.9 
34.5 
35.5 

34.8 
36 . 7 
35  5 

a  Sea  Column  F  of  Table  17B. 
b  See  Column  E  of  Table  17C. 

c  Estimated  from  the  Annual  Reports  of  the  U.  S.  Comptroller  of  the  Currency; 
averages  for  pairs  of  fiscal  years. 

d  See  Column  B  of  Table  17D;  comprises  wages  and  salaries  only. 

It  is  clear  that  not  only  did  the  value  product  of  the  industry  nearly 
double  during  the  decade,  but  apparently  the  per  cent  of  that  product 
going  to  the  employees  increased  steadily  throughout  the  period.  Again, 
however,  it  must  be  kept  in  mind  that  information  concerning  the  em- 
ployees is  too  scanty  to  justify  laying  much  stress  on  this  tentative  con- 
clusion. It  is  certain,  however,  that  the  relative  share  of  the  employees 
in  the  net  value  product  is  much  smaller  than  in  the  fields  of  manufacturing 
or  transportation. 

§  17h.  Banking  Facilities  Compared  to  Population  and  Income 

It  is  a  matter  of  interest  to  note  whether  or  not  the  people  of  the  United 
States  are  becoming  increasingly  dependent  upon  banking  facilities  in  the 
conduct  of  their  business.  Table  17F  presents  certain  facts  that  bear 
upon  this  problem. 


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BANKING 


209 


Column  F  of  Table  17F  makes  it  clear  that  batik  accommodation  is  jusl 
about  keeping  pace  with  population,  but  that  it  is  not  growing  quite  as 
rapidly  as  the  total  income  of  the  people  of  the  nation. 

>j  17i.  Changes  in  the  Volume  of  Business  per  Bank 

It  is  also  worth  while  to  ascertain  whether  or  not  there  is  a  tendency 

for  banks  to  grow  larger  on  the  average.     If  so,  it  should  be  apparent  in  the 

average  of  loans  and  deposits  per  bank.    The  facts  are  set  forth  in  Table 

17G. 

TABLE  17G 


THE  AVERAGE  VOLUME  OF  COMBINED  LOANS  AND  INDIVIDUAL 
DEPOSITS  IN  THE  BANKS  OF  THE  UNITED  STATES 


A 

B 

C 

D 

E 

F 

Middle 
of 
year 

Sum  of  loans 

and  individual 

deposits  a 

(Millions) 

Number  of 

banks  a 

Loans  and 

deposits  per 

bank 

(Millions) 

B 

C 

Index  of 

wholesale 

prices '> 

Purchasing 

power  of  loans 

and  deposits 

per  bank  at 

prices  of  1913 

(Millions) 

D  -=-  E 

1909 

1910 

1911 

1912.  .  .  . 

1913 

1914. .  .  . 
1915 
1916...  . 

1917... 
1918. . . . 
1919... 

$25,338 
27,742 
28,889 
30,916 

32,044 
33,806 
34,857 
40,585 

46,884 

50,322 
58,366 

22,491 
23,095 
24,392 

25,195 

25,993 

20,705 
27,062 
27,513 

27,923 
28,880 
29,123 

$1.13 

1.20 
1.18 
1.23 

1.23 
1.26 

1.29 
1.48 

1.68 
1.74 
2.00 

.97 

.99 

.95 

1.01 

1.00 
1.00 

1.01 
1.24 

1.76 
1.96 
2.12 

SI.  17 

1.21 
1.24 
1.22 

1.23 
1.26 

1.28 
1.19 

.95 

so 
.94 

a  Annual  Report  of  U.  S.  Comptroller  of  the  Currency,  1919,  Volume  I,  p.  I  so. 
b  U.  S.  Bureau  of  Labor  Statistics,  Bulletin  269,  p.  15. 


It  is  clear  that,  on  the  average,  a  bank  could  finance  less  business  at  the 
end  of  the  decade  than  in  the  earlier  years.  If,  as  is  sometimes  asserted, 
there  is  increasing;  concentration  in  the  banking  business,  it  must  then  lie 
in  greater  control  of  some  banks  by  others  and  not  in  the  growth  in  the 
size  of  the  average  bank,  since  this  still  remains  a  relatively  small  concern. 


CHAPTER  18 
ALL  BRANCHES  OF  GOVERNMENT 

§  18a.  The  Components  of  the  Net  Value  Product 

In  dealing  with,  the  product  of  government,  the  same  criterion  is  used 
that  has  been  applied  in  the  industrial  fields  previously  studied;  namely, 
what  Look  or  money  income  do  individuals,  as  such,  derive  therefrom? 
Evidently,  governmental  units  expend  great  amounts  for  wages  and  sal- 
aries, but  they  pay  no  dividends.  Large  sums  are,  however,  disbursed  in 
interest,  mostly  to  private  individuals  but  to  no  inconsiderable  extent  to 
banks.  The  interest  going  to  banks  must  not  be  included  in  the  govern- 
mental value  product  since  it  is  already  accounted  for  as  a  receipt  in  the 
banking  industry.  In  this  study,  the  net  value  product  of  government 
will,  then,  he  considered  simply  as  the  total  of  wages,  salaries,  pensions, 
gratuities,  and  interest  paid  to  private  individuals. 

Because  of  the  nature  of  the  available  statistics  government  expendi- 
tures have  been  divided  into  four  main  classes: 

1.  Federal. 

2.  State  and  County. 

3.  City  and  Village. 

4.  School  Districts. 

§  18b.  The  Number  of  Employees 

One  of  the  most  difficult  parts  of  the  study  has  been  to  estimate  the 
number  of  employees  engaged  in  each  of  these  governmental  fields.  For 
the  United  States  Government,  the  sources  made  use  of  are  the  Official 
Register,  the  Statistical  Abstract,  and  the  Annual  Reports  of  the  Secretary 
of  War  and  of  the  Postmaster  General.  While  the  results  are  not  highly 
accurate,  it  is  almost  certain  that  the  errors  in  the  estimates  of  the  number 
of  Federal  employees  are  relatively  small. 

It  is  difficult,  however,  to  obtain  any  reasonably  accurate  figures  con- 
cerning the  numbers  of  State  and  County  employees.  The  United  States 
Census  of  Occupations  gives  practically  no  aid,  for  it  records  only  offi- 
cials, *  leaving  out  of  account  the  army  of  clerks,  stenographers,  etc.,  who 
far  outnumber  those  who  are  their  superiors  in  rank.  The  desired  num- 
ber has  therefore  been  estimated  by  ascertaining  from  a  study  of  The 

>  Even  these  are  doubtless  often  entered  under  their  professions. 

210 


ALL  BRANCHES  OF  GOVERNMENT  211 

Census  of  Wealth,  Debt  and  Taxation  and  of  The  Financial  Statistics  of 
States,  the  approximate  total  amounts  paid  as  wages  and  salaries  in  the 
various  years  and  then  dividing  these  totals  by  the  average  compensa- 
tion for  the  services  of  State  and  County  employees  in  New  York  as  approx- 
imated from  the  reports  of  the  State  Civil  Service  Commission.  While  we 
have  no  reason  for  believing  that  New  York  salaries  are  especially  non- 
representative,  a  much  wider  base  would  be  necessary  before  one  could  feel 
confidence  in  the  results.  However,  time  was  lacking  to  utilize  fully  the 
scanty  and  ill-assorted  material  scattered  through  some  of  the  State 
reports,  or  to  canvass  thoroughly  all  of  the  State  records  in  the  hope  of 
finding  better  organized  results  which  perchance  may  there  exist.  Even 
the  rather  crude  analysis  here  made  represents  the  results  of  several  weeks 
of  search  and  calculation. 

The  determination  of  the  number  of  city  and  village  employees  offered 
a  problem  only  slightly  less  difficult  of  solution.  Using  the  United  States 
Census  reports  and  interpolating  by  aid  of  the  police  and  fire  department 
records  of  several  large  cities,  it  was  found  possible  to  approximate  reason- 
ably well  the  number  of  policemen  and  firemen  in  all  cities.  It  is  believed 
therefore  that  the  results  in  this  field  are  satisfactory.  The  number  of 
other  city  employees  was  estimated  by  first  calculating  the  total  wages 
and  salaries  paid  to  city  employees,  using  for  this  purpose  the  reports  of 
the  auditors  or  comptrollers  of  various  cities,  and  the  Financial  Statistics 
of  Cities  published  by  the  United  States  Census  Bureau.  The  total  for 
each  year  was  divided  by  an  average  wage  estimated  from  the  same  sources 
in  order  to  obtain  the  approximate  number  of  employees  attached  to  the 
industry.  In  this  instance,  a  large  quantity  of  usable  data  were  found 
and  the  results  are  therefore  somewhat  more  dependable  than  in  the  case 
of  the  States  and  Counties,  although  they  are  far  from  exact.  Table  ISA 
summarizes  the  estimates. 

In  calculating  the  number  of  school  employees,  the  reports  of  the  United 
States  Commissioner  of  Education  were  the  chief  sources  relied  upon. 
These  reports  give  practically  complete  data  for  the  common  schools  and 
fairly  satisfactory  information  concerning  more  advanced  institutions. 
The  number  of  other  school  employees  is,  however,  estimated  from  frag- 
mentary evidence.  The  results  as  a  whole  are,  therefore,  only  moderately 
accurate. 


212 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  18A 


\\  ESTIMATE b  OF  THE  NUMBER  OF  PERSONS  EMPLOYED  BY  THE 
VARIOUS  BRANCHES  OF  GOVERNMENT  IN  THE  CONTINENTAL 
UNITED  STATES 


Thousands  of  employees  attach 

sd  to  various  branches  of  government 

Ml 

United  States 

States 

Cities  and  villages 

Year 

Police 

School 

Army, 

Postal 

General 

and 

and  fire 

Municipal 

General 

districts" 

navy  and 

service 

govern- 

Coun- 

depart- 

utilities 

govern- 

marines 

ment 

ties  a 

ments 

ment 

1909 

1,565 

135 

280 

142 

161 

96 

29 

149 

573 

1910 

1,620 

133 

283 

144 

173 

97 

30 

169 

591 

1911 

1,671 

137 

283 

147 

184 

100 

31 

LSI 

607 

1912 

1,727 

145 

287 

148 

195 

102 

32 

192 

626 

1913 

1,785 

148 

291 

150 

211 

108 

33 

200 

644 

1914 

1,866 

159 

293 

160 

231 

108 

34 

212 

669 

1915 

1,955 

166 

296 

174 

250 

111 

35 

228 

694 

1916 

2,037 

200 

298 

190 

255 

112 

36 

232 

714 

1917 

2,691 

786 

300 

232 

253 

115 

37 

235 

733 

1918 

5,129 

3,038 

290 

433 

254 

114 

39 

238 

724 

a  Teachers  employed  by  States  are  included  under  ''School  Districts." 
b  For  derivation  of  the  items  in  this  table  see  the  text. 

§  18c.  The  Amount  Paid  in  Wages  or  Salaries 

As  previously  stated,  information  is  very  incomplete  concerning  the 
amount  of  salaries  paid  by  governmental  units.  The  Departments  of  the 
Federal  Government  rarely  give  the  complete  totals  anywhere  in  their 
reports  and,  in  many  instances,  wages  and  other  expenses  are  so  confused 
that  they  cannot  be  separated.  The  results  here  given  must,  therefore,  be 
regarded  only  as  approximations  to  the  truth,  although  the  existence  of 
reliable  data  for  important  payments  made  by  the  Department  of  Agri- 
culture, the  army  and  navy,  and  the  Post  Office  Department  make  it 
improbable  that  the  errors  in  this  field  are  unduly  large. 

The  estimates  for  States  and  Counties  are  made  by  assuming  that  the 
proportion  of  their  total  expenditures  going  as  wages  and  salaries  is  the 
same  as  in  the  State  of  New  York.  The  total  expenditures  are  estimated 
from  the  Census  reports  on  the  Financial  Statistics  of  States  and  on  Wealth, 
Debt,  and  Taxation.  The  result  cannot  be  deemed  more  than  a  reasonable 
approximation. 

The  salary  and  wage  payments  to  employees  by  the  general  government 
of  cities  and  villages  are  computed  on  the  basis  of  the  records  of  the  sample 
cities  of  Chicago,  Cincinnati,  Providence  and  San  Francisco.  The  as- 
sumption has  been  made  that  wages  and  salaries  absorb  the  same  propor- 
tion of  general  governmental  costs  in  other  cities  as  in  the  average  of  these 


,* 


ALL  BRANCHES  OF  GOVERNMENT 


213 


four.  The  total  general  governmental  costs  are  estimated  from  the  figures 
appearing  in  The  Financial  Statistics  of  Cities.  The  results  here  stated 
must  be  considered  as  rather  rough  approximations  to  the  truth. 

The  estimates  for  the  pay  of  employees  of  municipal  utilities,  being  com- 
puted along  somewhat  similar  lines,  are  only  slightly  more  accurate. 
The  figures  for  policemen  and  firemen  are,  however,  believed  to  be  much 
nearer  the  truth,  being  based  upon  the  rather  reasonable  assumption  that 
average  wages  in  New  York,  Chicago,  Boston,  Charleston,  and  Wash- 
ington (the  cities  for  which  records  are  available),  are  fairly  typical  for 
the  entire  nation.  The  figures  for  school  employees  are  greatly  streng- 
thened by  the  fact  that  the  United  States  Commissioner  of  Education 
presents  nearly  complete  data  for  teachers  in  the  public  schools.  The 
chief  possibility  of  error  arises  from  the  lack  of  any  but  extremely  fragmen- 
tary data  concerning  the  amounts  paid  for  the  services  of  janitors  and 
other  non-teaching  employees  of  school  districts,  colleges,  and  universities. 

The  general  results  are  summarized  in  Table  18B. 

TABLE   18B 

AN   ESTIMATE  6    OF  THE   TOTAL  AMOUNTS   DISBURSED   BY   VARIOUS 
BRANCHES  OF  GOVERNMENT  IN  DIRECT  PAYMENT  FOR  THE  SERV 
ICES  OF  EMPLOYEES 


Millions 

of  Dollars  Paid  by 

All 
branches 
of  govern- 

Federal government 

States 
and 

Cities  and  villages 

Calen- 
dar 

Army, 
navy  and 

Posl 

.Miscel- 
laneous 

Police 

and  lire 

Municipal 

Miscella- 
neous civil 

|  Schools 

year 

ment 

marine 

office  De- 

civil de- 

counties 

depart- 

utilities 

depart- 

corps " 

partment 

partments 

ments 

ment  s 

1909. . 

$1,157 

$    113 

$153 

$148 

$151 

$113 

$25 

$158 

$290 

1910. 

1,236 

110 

1G0 

157 

166 

122 

26 

180 

316 

1911.  . 

1,300 

112 

166 

156 

181 

126 

26 

196 

337 

1912. 

1,378 

119 

174 

156 

199 

132 

27 

210 

362 

1913. . 

1,470 

123 

187 

163 

222 

137 

30 

221 

:;s: 

1914. . 

1 ,571 

128 

199 

177 

250 

141 

:;:; 

229 

11 1 

1915.  . 

1.684 

133 

206 

194 

276 

1  11 

33 

256 

411 

1916. 

1,814 

1 82 

21  1 

211 

287 

1  16 

35 

2iil 

176 

1917. . 

2,530 

769 

220 

271 

293 

151 

37 

268 

52 1 

1918. . 

1,591 

2,391 

243 

572 

305 

164 

39 

299 

578 

ii  Includes  allowance  for  board,  lodging,  clothing,  etc.,  furnished. 
i>  For  derivation,  see  text. 

§  18d.  The  Average  Annual  Earnings  of  Employees 

The  division  of  the  items  in  Table  18B  by  the  corresponding  ones  in 
Table  18A  gives  the  figures  appearing  in  Table  18C,  these  figures  repre- 
senting tin'  average  annual  pay  per  employee  in  each  of  the  divisions 

considered. 


214 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  18C 


AN  ESTIMATE"  OF  THE  AVERAGE  ANNUAL  PAY  PER  EMPLOYEE  IN 
VARIOUS  BRANCHES  OF  GOVERNMENTAL  SERVICE  IN  THE  CON- 
TINENTAL UNITED  STATES 


All 

Federal  Government 

States 

Cities  and  Villages 

Cal- 

Army, 

Post 

office 

Depart- 

en- 

Branches 

navy, 

Miscel- 

and 

Police 

Munic- 

Miscel- 

Schools 

dar 

of  Gov- 

and 

laneous 

Coun- 

and fire 

ipal 

laneous 

Year 

ernment 

marine 

civil 

ties 

depart- 

utilities 

civil 

corps  b 

ment 

$    938 

ments 

1909 

$739 

$838 

$547 

$1,040 

$1,176 

$  843 

$1,058 

$517 

1910 

763 

830 

565 

1,090 

958 

1,249 

845 

1,066 

535 

1911 

77S 

818 

585 

1,061 

9.S2 

1,262 

845 

1,079 

555 

1912 

798 

819 

608 

1,055 

1,018 

1,289 

855 

1,091 

578 

1913 

823 

830 

644 

1,088 

1,053 

1,263 

903 

1,103 

601 

1914 

842 

SOS 

678 

1,108 

1,083 

1,314 

951 

1,077 

619 

1915 

861 

803 

696 

1,117 

1,104 

1,291 

954 

1,120 

635 

1916 

891 

912 

718 

1,113 

1,125 

1,302 

964 

1,138 

666 

1917 

940 

978 

736 

1,165 

1,157 

1,314 

9S2 

1,141 

711 

1918 

895 

787 

839 

1,320 

1,203 

1,441 

1,014 

1,257 

798 

a  For  mode  of  derivation,  consult  text. 

b  Includes  an  allowance  for  board,  lodging,  clothing,  etc.,  furnished. 


In  Table  18D  the  average  pay  is  reduced  to  purchasing  power  at  a 
constant  price  level. 


S 


ALL  BRANCHES  OF  GOVERNMENT 


21; 


TABLE  18D 


AN  ESTIMATE  OF  THE  PURCHASING  POWER  AT  PRICES  OF  1913  OF  THE 
PAY  OF  THE  AVERAGE  EMPLOYEE  IN  EACH  OF  THE  LEADING 
BRANCHES  OF  GOVERNMENTAL  SERVICE 


Index  of 
prices  of 

goods 
used  by 
working 

classes 

Purchasing  power  of  annual  earnings  of  employees  of  <* 

Cal- 

All 
branches 
of  gov- 
ernment 

Federal  Government 

States 

and 
Counties 

Cities  and  Villages 

en- 
dar 
year 

Army, 
navy 

and 
marine 

corps  6 

Post 
office 
Depart- 
ment 

Miscella- 
neous 

civil 
depart- 
ments 

Police 
and  .fire 
depart- 
ments 

Munic- 
ipal 

utilities 

Miscella- 
neous 
civil 
depart- 
ments 

Sehi..]|, 

1909 
1910 
1911 
1912 
1913 

1914 
1915 
1916 
1917 
1918 

.955 
978 

.9X1 
.994 
1.00 

1.01 
1.03 
1.10 
1.29 
1.58 

$774 
780 
791 
803 
823 

833 
836 

810 
729 
567 

$877 
849 
831 
824 
830 

800 
780 
829 

758 
l!is 

$573 
578 
595 
612 
644 

671 
676 
653 
."1 
531 

$1,089 

1,115 
1,078 
1,061 

1,088 

1,097 

1,084 

1,012 

903 

835 

$    9S2 

980 

99S 

1,024 

1,053 

1,073 

1,072 

1,023 

897 

761 

$1,231 
1,303 
1,283 

1 ,297 
1,263 

1,301 
1,253 
1,184 
1,019 
912 

sss:; 
864 
859 
860 
903 

942 
926 
S76 
761 
642 

$1,108 
1,090 
1,097 
1,098 
1,103 

1,066 
1,087 
1,035 

884 
796 

$541 
547 
564 

581 
601 

613 
617 
605 
551 

505 

a  Derived  by  dividing  the  respective  items  in  Table  18C  by  the  indices  in  the  second 
column  of  this  table. 

b  Includes  an  allowance  for  subsistence. 

The  figures  in  Table  18D  indicate  that  from  1909  to  1915,  the  earnings 
of  governmental  employees  were  increasing  steadily  but  that  after  that 
date,  mainly  because  of  the  sharp  rise  in  the  price  level,  nearly  every  class 
suffered  a  loss  in  economic  prosperity  measured  in  terms  of  the  amount  of 
commodities  that  the  salaries  would  buy. 

§  18e.  Pensions 

In  addition  to  the  sums  paid  out  as  wages  and  salaries  for  present  labor, 
governments  expend  large  sums  as  pensions  and  annuities,  payments  which 
may  best  be  thought  of  as  payments  for  services  rendered  in  the  pasl  by 
the  employees  of  that  day.  The  largest  item  in  this  list  is,  of  course,  the 
army  pension  list,  and  records  for  this  line  are  complete.  It  is  feasible 
also  to  obtain  a  general  idea  of  the  amounts  paid  by  State  and  local  gov- 
ernments for  pensions  and  gratuities.  The  final  results  of  a  compilation  of 
data  on  this  subject  are  recorded  in  Table  18E. 


21G 


THE   ESTIMATE   BY  SOURCES  OF   PRODUCTION 


TABLE  18E 


APPROXIMATE  AMOUNT  OF  PENSIONS  AND  GRATUITIES  PAID  OUT  BY 
THE  VARIOUS  BRANCHES  OF  GOVERNMENT  IN  THE  CONTINENTAL 
UNITED  STATES 


a  Estimated  from  the  Financial  Statistics  of  Cities  issued  by  the  Census  Bureau. 

b  Estimated  from  the  Financial  Statistics  of  States  published  by  the  Census  Bureau. 

c  Statistical  Abstract  of  the  United  States,  1919,  p.  741. 

§  18f.  Interest  on  Public  Debts 

The  principal  payments  x  made  by  government  as  a  return  for  the  ser- 
vices of  property  consist  of  interest  on  the  public  debt.  A  considerable 
share  of  this  interest  is  paid  to  banks  and,  being  accounted  for  in  their 
income,  is  therefore  excluded  from  the  net  value  product  of  government. 
It  is  impossible  to  measure  with  accuracy  the  total  volume  of  such  inter- 
est payments;  but  data  are  available  indicating  the  approximate  amount 
of  domestic  governmental  securities  held  by  banks  and  by  applying  to 
this  total  an  estimated  interest  rate,  one  is  enabled  to  approximate  the 
amount  of  this  kind  of  interest  payments  made  each  year.  Table  18F 
indicates  the  procedure  followed. 

Corporations  other  than  banks  receive  no  inconsiderable  share  of  the 
bond  interest  paid  by  government,  but  since  bond  interest  receipts  are 
excluded  from  the  value  product  of  such  corporations  it  follows  that  inter- 
est payments  made  to  them  must  be  treated  just  like  those  made  to  indi- 
viduals. They  have  therefore  been  counted  as  part  of  the  value  product 
of  government. 

There  is,  however,  strong  ground  for  contending  that  most  governmental 
interest  payments,  no  matter  to  whom  paid,  should  be  excluded  from  the 

1  Some  money  is  expended  for  rent  of  leased  buildings,  but  the  amount  is  normally  small 
and  hence  has  been  omitted  in  this  study. 


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218 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


net  income  of  the  people.     For  reasons  discussed  in  §  lm,  it  has  been 
decided  that  accurate  accounting  requires  their  retention. 

An  estimate  of  the  disbursements  by  the  various  branches  of  govern- 
ment in  the  form  of  interest  paid  to  private  parties  is  presented  in  Table 
18G. 

TABLE  18G 

AN  ESTIMATE  OF  THE  TOTAL  AMOUNT  OF  INTEREST  PAID  TO  INDIVID- 
UALS BY  THE  DIFFERENT  BRANCHES  OF  GOVERNMENT  IN  THE 
CONTINENTAL  UNITED  STATES 


Millions  of  dollars  paid 

A 

B 

C 

D 

E 

Year 

Interest  paid  to  banks  and  individuals  by 

By  all 
branches 
of  govern- 
ment to 
banks c 

By  all 

branches  of 

Federal 
govern- 
ment a 

State  and 
local  gov- 
ernment b 

All  branches 
of  government 
A  +  B 

government 

to  private 

individuals 

C  — D 

1909    

$  22 
21 
22 
23 
23 

23 

23 

24 

111 

407 

$140 
172 
184 
194 
201 

219 
241 
251 
259 
274 

$162 
193 
206 
216 
224 

242 
264 
275 
370 
680 

$  65 
72 
70 
75 
73 

78 
84 
85 
93 
170 

$  96 

1910. 

121 

1911  . 

136 

1912. 

142 

1913. 

151 

1914 

1915 

1916 

164 
180 
190 

1917 

1918 

277 
510 

a  Statistical  Abstract  of  the  United  States  for  1919,  p.  756, — averages  for  pairs  of  fiscal 
years. 

b  Data  from  the  Census  of  Wealth,  Debt,  and  Taxation  for  1913,  Vol.  II,  pp.  40-43 
and  from  the  Financial  Statistics  of  States,  and  the  Financial  Statistics  of  Cities  published 
by  the  Bureau  of  the  Census. 

c  See  Table  18F,  Column  J. 

Table  18G  shows  clearly  the  steady  increase  in  interest  payments  by 
governmental  units  to  private  recipients  and  the  especially  rapid  rise  in 
1917  and  1918  due  mainly  to  the  sale  of  Liberty  Bonds  by  the  Federal 
Government.  Before  that  date,  the  Federal  debt  was  practically  station- 
ary, the  increase  nearly  all  coming  from  State  and  local  governments. 

§  18g.  The  Net  Value  Product  and  Its  Division 

We  are  now  in  a  position  to  measure  the  total  value  product  of  govern- 
ment and  the  percentage  thereof  going  to  employees.  For  reasons  previ- 
ously stated,  government  pensions,  like  pensions  paid  by  corporations, 
have  been  included  with  the  share  of  the  employees.  The  items  have, 
however,  been  separately  stated  so  that  anyone  who  disagrees  with  this 


ALL  BRANCHES  OF  GOVERNMENT 


219 


point  of  view  can  easily  make  such  adjustments  as  he  may  believe  neces- 
sary.   In  any  case,  the  effect  on  the  percentage  will  not  be  very  great. 

TABLE  18H 

THE  NET  VALUE  PRODUCT  OF  ALL  BRANCHES  OF  GOVERNMENT  IN 
THE  CONTINENTAL  UNITED  STATES  AND  THE  PERCENTAGE 
THEREOE  GOING  AS  PAYMENT  FOE  THE  SERVICES  OF  PAST  AND 
PRESENT  EMPLOYEES 


A 

B 

C 

D 

E 

F 

G 

Year 

Wages  and 

salaries  a 
(Millions) 

Pensions 

and 

gratuities^ 

(Millions) 

Share  of 
employees, 

past  and 
present 

(Millions) 
B  +  C 

Interest 
payments 

to  private 
individuals  r 

(Millions) 

Net  value 

product  of 

government 

(Millions) 

D  +E 

Per  cent  of 
value  prod- 
uct g  ling  t  i 
employees 

10)1) 

F 

1909 
1910 
1911 
1912 
1913 

1914 
1915 
1916 
1917 
1918 

$1,157 
1,236 

1,300 
1,378 
1,470 

1,571 
1,684 
1,814 
2,530 
4,591 

$187 
185 
185 
196 
208 

206 
202 
203 
216 
251 

$1,343 
1,422 
1,486 

1,574 

1,678 

1,777 
1,886 
2,017 
2,746 

4,842 

$  96 
121 
136 
142 
151 

164 

180 
190 
277 
510 

$1,440 
1,542 
1,622 
1,716 

1,829 

1,941 

2,0  Hi 
2,207 

3.023 
5,352 

93.3 

92 . 2 
91.6 
91.7 
91.7 

91.6 
91.3 

91.4 
90.8 

90  5 

«  See  Table  18B 
b  See  Table  18E. 
c  See  Table  18G,  Column  E. 


It  is  clear  that  past  or  present  employees  get  most  of  the  net  value 
product  of  government,  only  about  one-tenth  of  the  whole  going  to  the 
creditors  in  the  form  of  interest.  In  1917  and  1918  there  is  discernible 
a  slight  diminution  in  the  percentage  going  to  employees,  a  diminu- 
tion which  will  probably  increase  in  1919  and  1920  owing  to  the 
increased  size  of  the  Federal  debt,  and  the  smaller  number  of  Federal 
employees. 

Having  arrived  at  the  net  value  product  of  the  different  branches  of 
government  within  the  United  Stales,  it  is  ;l  matter  of  interest  to  reduce 
the  results  to  terms  of  purchasing  power.    This  is  done  in  Table  181. 

A  glance  at  Table  181  makes  it  evident  that  governmental  outlays  have 
more  than  doubled  during  the  decade,  even  when  all  the  effects  of  price 
inflation  have  been  eliminated.  The  very  sharp  increase  in  1918  was 
mainly  due  to  the  war  and  may  of  course  soon  be  partially  offset  by 
reductions. 


220 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  181 


AN  ESTIMATE  OF  THE  PURCHASING  POWER  AT  PRICES  OF  1913  OF  THE 
NET  VALUE  PRODUCT  OF  ALL  BRANCHES  OF  GOVERNMENT  IN  THE 
CONTINENTAL  UNITED  STATES 


A 

B 

C 

D 

E 

F 

G 

H 

Index 

Index  of 

Purchas- 

of prices 

Purchas- 

Total 

prices 

ing  power 

of  goods 

Purchas- 

ing power 

share 

of  goods 

of  share 

Interest 

consumed 

ing  power 

of  net 

of  past 

con- 

of em- 

paid to 

by  indi- 

of share 

value 

Year 

and  pres- 

sumed  by 

ployees  d 

individ- 

vidual 

of  security 

product 

(  nt  em- 

manual 

at  prices 

uals  c 

holders 

holders 

of  gov- 

ployees a 

and 

of  1913 

(Millions) 

of  gov- 

(Millions) 

ernment 

(Millions) 

clerical 

(Millions) 

ernment 

E  ~  F 

(Millions) 

workers  b 

B  -*-  C 

secur- 
ities e 

D  +  G 

1909. . 

$1,343 

.  955 

$1,407 

$  96 

.964 

$100 

$1,507 

1910..  . 

1,422 

.  978 

1,453 

121 

.983 

123 

1,576 

1911. 

1,4S6 

.984 

1,510 

136 

.989 

138 

1,648 

1912. 

1,574 

.994 

1,584 

142 

.998 

142 

1,726 

1913... 

1,678 

1.000 

1,678 

151 

1.000 

151 

1,829 

1914..  . 

1,777 

1.01 

1,759 

164 

1.011 

162 

1,921 

1915... 

1,886 

1 .  03 

1,831 

180 

1  006 

179 

2,010 

1916..  . 

2,017 

1.10 

1,834 

190 

1 .  084 

175 

2,009 

1917..  . 

2,746 

1.29 

2,129 

277 

1.234 

224 

2,353 

1918... 

4,842 

1.58 

3,064 

510 

1.439 

354 

3,419 

a  See  Table  18H,  Column  D;  includes  pensions. 

b  U.  S.  Bureau  of  Labor  Statistics  index  carried  back  by  means  of  a  special  study; 
see  Table  2C. 

c  See  Table  ISO,  Column  E. 

d  Includes  pensions. 

e  A  combined  index  for  working  class  families  and  families  spending  respectively 
$5,000  and  $25,000  annually  for  consumption  goods,  the  weights  in  order  being  1,  1  and  2. 

§  18h.  The  Per  Capita  Net  Value  Product 

It  is  worth  while  to  compare  next  the  relative  rates  of  growth  of  the 
net  value  product  of  government  when  reduced  to  terms  of  constant  price 
level,  with  the  increase  in  the  population  of  the  country.  This  com- 
parison appears  in  Table  18J. 

The  decade  has  increased  the  purchasing  power  of  income  derived  from 
government  to  about  twice  as  much  per  person  in  the  United  States  as  was 
the  case  in  1909,  but  the  really  striking  increase  did  not  come  until  the 
advent  of  the  war,  most  of  it  being  in  1919.  This  index  represents  fairly 
well  the  relative  services  of  government  to  the  people  and  its  burdensome- 
ness  to  the  taxpayers  in  the  different  years. 


,<* 


ALL  BRANCHES  OF  GOVERNMENT 


221 


TABLE  18J 


THE  PER  CAPITA  NET  VALUE  PRODUCT  AT  PRICES  OF  1913  OF  ALL 
BRANCHES  OF  GOVERNMENT  IN  THE  CONTINENTAL  UNITED 
STATES 


A 

B 

C 

D 

Year 

Purchasing  power 

of  net  value 
product  ° 
(Millions) 

Populal  ion  of  the 

Continental  United 

States b 

(Thousands) 

Per  capita  purchasing 
power 
B 

C 

1909 

1910 

1911 

L912 

1913 

$1,507 
1,576 
1,648 
1,726 
1,829 

1,921 
2,010 
2,009 

2,35;; 

3,419 

90,370 
92,229 
93,811 
95,338 

97,278 

99,194 
100,428 
101,722 
103,059 
104,182 

S17 
17 
18 
is 
19 

1914 

1915 

1916 

1917 

19 
20 
20 
23 

1918 

33 

a  See  Table  181,  Column  H. 
b  See  Table  2A. 


§  18i.  The  Share  of  Government  in  the  National  Value  Product 

One  of  the  most  interesting  questions  to  be  answered  by  this  study  is 
whether  the  activities  of  government  are  an  increasing  or  dirniriishing 
factor  in  our  national  life.  This  query  is  partially  answered  by  Table 
18K.  Of  course,  the  very  rapid  development  of  governmental  activity 
during  the  war  years  can  scarcely  be  assumed  to  have  any  significant 
relationship  to  the  trend  under  discussion  until  later  developments  show 
whether  the  encroachments  of  government  upon  the  former  domain  of 
private  activity  are  permanent  or  transitory. 

While  it  is  perfectly  clear  thai  there  was  a  sharp  increase  in  the  relative 
activity  of  government  in  1918,  it  is  somewhat  doubtful  whether  there  was 
any  real  growth  in  the  percentage  before  that  date.  The  probabilities 
are,  however,  that  tin  trend  was  slightly  upward  throughout  the  decade 
but  the  movement  was  certainly  not  striking  enough  either  to  satisfy  the 
proponents  of  government  ownership  or  greatly  to  alarm  its  opponents. 


222 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  18K 


THE  ESTIMATED  SHARE  OF  GOVERNMENT  IN  THE  NET  VALUE 
PRODUCT  OF  ALL  THE  INDUSTRIES  OF  THE  CONTINENTAL  UNITED 
STATES 


A 

B 

C 

D 

Year 

Net  value  product 

of  all  industries  b 

(Millions) 

Net  value 

product  of  all 

branches  of 

government'^ 

(Millions)' 

Per  cent  of  value 

product  originating 

in  government 

activity 

C     B 

1909 

1910 

1911 

1912 

1913 

1914. 

$28,775 
31,766 
31,188 
33,554 
35,580 

33,936 
36,109 

45,418 
53,860 
60,366 

$1,440 
1,542 
1,622 
1,716 
1,829 

1,941 
2,066 
2,207 
3,023 
5,352 

5.00 
4.85 
5.20 
5.12 
5.14 

5  72 

1915 

1916 

1917 

1918 

5.72 

4.86 
5.61 
8.87 

a  See  Table  18H,  Column  F. 
b  See  Vol.  I,  Table  2. 


<* 


CHAPTER  10 
UNCLASSIFIED  INDUSTRIES  AM)  .MISCELLANEOUS  INCOME 

§  19a.  The  Field  Covered 

It  is  an  unfortunate  fact  that  there  exists  a  large  section  of  the  industrial 
field  the  activities  of  which  are  not  recorded  by  the  Census  Bureau,  the 
Interstate  Commerce  Commission,  or  any  other  Federal  agency.  State 
and  municipal  reports  and  private  investigation  give  an  inkling,  but 
nothing  more,  concerning  the  value  product  in  this  statistical  "no  man's 
land."  Wage  data,  while  scattered,  are  fortunately  quite  abundant,  and 
the  income  tax  throws  some  light  upon  the  gains  of  enterprise  and  property. 
These,  then,  are  the  chief  sources  upon  which  reliance  must  be  placed. 

The  income  derived  from  this  field  includes  that  arising  from  mercan- 
tile operations,  both  wholesale  and  retail,  from  the  activities  of  independ- 
ent professional  men  such  as  physicians  and  lawyers,  from  personal  ser- 
vice, from  the  rental  of  business  buildings,  and  from  interest  allowance  on 
the  value  of  consumption  goods  on  hand,  besides  that  from  numerous 
minor  sources.  These  items  of  income  are  grouped  and  summarized  in  the 
estimates  which  follow.  The  figures  for  the  earnings  of  employees  are 
believed  to  be  reasonably  accurate:  the  remaining  estimates  may  be  widely 
in  error. 

§  19b.  Number  of  Persons  Occupied  in  Unclassified  Industries 

The  number  of  entrepreneurs  and  employees  attached  to  unclassified 
industries  has  been  estimated  by  the  simple  process  of  adding  up  the  num- 
bers of  each  class  reported  for  all  of  the  industries  thus  far  recorded  and 
subtracting  the  totals  thus  obtained  from  the  respective  total  numbers  of 
entrepreneurs  and  employees  estimated  as  being  attached  to  all  industries. 
In  the  case  of  the  employees,  the  number  thus  arrived  at  for  each  year  1 
has  been  multiplied  by  an  estimated  percentage  of  employment,  and  the 
resulting  products  2  have  in  turn  been  multiplied  by  the  average  full  time 
wage  computed  for  the  unclassified  field. 

§  19c.  The  Earnings  of  Employees 

This  average  wage  is  based  upon  a  study  of  1GG  average  wage  records, 
some  more  or  less  fragmentary,  but  all  of  which  were  estimated  or  pieced 

i  See  Table  19A,  Column  F. 

2  These  products  represent  the  numbers  actually  working  and  are  entered  in  Table  19  A. 
Column  B. 

223 


224 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


out  for  the  entire  decade.  These  separate  records  have  been  weighted 
roughly  in  proportion  to  the  number  of  employees  in  the  field  which  they 
best  typified — the  numbers  being  taken  from  the  Census  of  Occupations  of 
1910.    Table  19A  presents  the  results  of  these  operations. 

TABLE  19A 

AN   ESTIMATE  OF  THE   NUMBER  OF   EMPLOYEES   IN   UNCLASSIFIED 
INDUSTRIES  AND  THEIR  AVERAGE  COMPENSATION  FOR  SERVICES 


A 

B 

Number 

C 

D 

E 

F 

G 

Average 

H 

I 

Fraction 

Number  of 

Index  of 

Purchasing 

of 

Total 

actually 

employees 

annual  earn- 

prices of 

power  of 

employees 

Average 

earnings  of 

working 

attached 

ings  of  those 

goods  con- 

average 

Year 

actually 

full-time 

employees 

of  those 

to  industry 

attached  to 

sumed  by 

annual 

at  work  « 

annual 

(Thousands) 

attached 

(Thousands) 

industry 

manual  or 

earnings 

(Thou- 

earnings a 

B  X  C 

to 

B 

D 

clerical 

G 

sands) 

industry  b 

E 

6,823 

F 

$    716 

workers  c 

0.955 

H 

1909.  . 

6,290 

$    777 

$4,887 

0.92 

$750 

1910.  . 

6,830 

802 

5,478 

.93 

7,376 

743 

.978 

759 

1911.. 

6,820 

806 

5,497 

.89 

7,685 

715 

.984 

727 

1912. . 

7,400 

833 

6,161 

.93 

7,980 

772 

.994 

777 

1913.  . 

7,020 

858 

6,538 

.91 

8,397 

779 

1.000 

779 

1914. . 

7,100 

885 

6,284 

.87 

8,183 

768 

1.01 

760 

1915.  . 

7,031 

904 

6,356 

.88 

8,175 

777 

1.03 

755 

1910. . 

7,477 

942 

7,043 

.92 

8,127 

867 

1.10 

788 

1917.  . 

7,290 

1,012 

7,384 

.9;; 

7,600 

972 

1.29 

753 

1918. . 

6,008 

1,087 

6,531 

.97 

6,194 

1,054 

1.58 

667 

a  For  mode  of  derivation,  see  text. 
6  See  §  2d  for  method  of  computation. 

c  U.  S.  Bureau  of  Labor  Statistics  index  carried  hack,  by  means  of  a  special  study; 
see  Table  2C. 

It  is  clear  that,  in  the  closing  years  of  the  decade,  wages  and  salaries 
failed  to  parallel  the  sharp  rise  in  the  price  level,  the  result  being  that  the 
economic  condition  of  the  employees  was  worse  in  1918  than  at  any  other 
time  in  the  period. 

§  19d.  The  Effect  of  the  War  on  the  Number  of  Employees 

Another  interesting  feature  of  the  table  is  the  decided  fall  in  the  number 
of  employees  occurring  in  1918.  This  fall  is  in  sharp  contrast  to  the  rise 
occurring  in  most  of  the  other  reporting  fields  and  shows  where  the  drain 
in  man  power  for  the  army  produced  its  ultimate  effect.  This  is,  of  course, 
not  at  all  equivalent  to  assuming  that  the  army  was  composed  of  a  larger 
proportion  of  men  formerly  engaged  in  this  rather  than  in  other  fields,  for 
there  was  shifting  all  along  the  line  until  the  reduction  occurred  in  the  lines 
of  activity  least  necessary  for  war  purposes. 


* 


UNCLASSIFIED  INDUSTRIES  AM)  MISCELLANEOUS  INCOME     225 

§  19e.  The  Profits  of  Entrepreneurs 

The  estimate  of  the  profits  of  the  entrepreneurs  in  unclassified  indusl  riea 
rests  almost  wholly  upon  the  reports  of  the  Federal  Bureau  of  Internal 
Revenue  for  1916.  In  their  Statistics  of  Income  for  that  year  (pages  126  to 
137),  are  given  frequency  tables  of  the  incomes  of  persons  in  different  occu- 
pations. Those  groups  belonging  in  the  unclassified  field  were  segregate  I 
and  summated  and  the  curve  derived  therefrom  was  plotted  and  extended 
to  cover  the  incomes  falling  below  the  taxable  limit.  The  general  assump- 
tion was  made1  that  the  net  income  of  entrepreneurs  remained  somewhat 
above  that  for  employees  at  the  same  relative  points  on  the  distribution 
scale. 

An  estimate  was  next  made  of  the  fraction  of  the  total  income  of  persons 
in  these  selected  occupations  which  was  derived  from  the  gains  of  business 
or  profession,  this  estimate  being  also  based  upon  Statistics  of  Income. 
The  total  income  as  computed  was  multiplied  by  this  fraction  in  order  to 
arrive  at  the  gains  of  entrepreneurs  in  unclassified  industries. 

Since  for  other  years,  the  distributions  of  individual  incomes  were  not 
reported  by  occupations,  it  was  necessary  to  make  rough  estimates  there- 
for based  upon  variables  which  it  was  believed  might  prove  representa- 
tive; namely  bank  clearings,  profits  in  other  industrial  fields,  and  the  net 
gains  of  corporations  as  shown  by  the  income-tax  reports.  Owing  to  the 
complexity  of  the  procedure  adopted,  if  seems  impracticable  to  do  more 
here  than  to  present  the  final  results  of  the  study.  The  lack  of  sat isfactory 
data  necessarily  gives  rise  to  the  possibility  of  great  error,  hence  the  results 
obtained  cannot  be  considered  as  anything  more  than  very  rough  approxi- 
mations to  the  truth. 

The  statistics  of  the  earnings  of  corporations  engaged  in  business  in  tin-; 
field  are,  for  recent  years,  more  complete  than  are  those  of  the  incomes  of 
individual  entrepreneurs.  Although  this  group  cannot  be  accurately 
regated  in  1917  and  1918,  it  seems  quite  certain  that  the  figures  here  pre- 
sented for  the  three  years  beginning  with  1916  are  accurate  enough  for 
practical  purposes.  Before  the  first  date  mentioned,  however,  it  has  been 
necessary  to  make  estimates  by  using  as  an  index  of  change  a  combination 
of  bank  clearings  and  total  profits  in  other  recorded  lines  of  industry. 

§  19f.  Rents  and  Royalties 

In  the  Statistics  of  Income  published  each  year  by  the  Bureau  of  Internal 
Revenue,  appears  a  record  of  the  total  rents  and  royalties  received  by  mem- 
bers of  each  income  class.  These  quantities  have  been  plotted  as  curves 
and  the  curves  have  been  extended  to  take  in  the  income  classes  below  the 
taxable  limit.    Since  the  amount  of  contract  rent  received  by  the  poorer 


226 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


classes  of  the  population  is  presumably  small,  it  seems  probable  that  the 
error  involved  in  the  method  used  is  relatively  unimportant.  There  is 
greater  danger  that  a  large  fraction  of  rents  received  are  not  reported  to 
the  income  tax  authorities.  Should  such  be  the  case,  the  estimates  pre- 
sented would  of  course  be  too  low,  as  no  adjustment  has  been  made  for 
non-reporting. 

Contract  rents  and  royalties  have  already  been  calculated  for  a  num- 
ber of  industries.  These  amounts  have  been  added  together  and  their 
sum  has  been  subtracted  from  the  estimated  total  of  the  same  for  the  entire 
country,  the  remainder  being  assumed  to  represent  the  net  rents  and  royal- 
ties received  from  unclassified  industries. 

Before  1916,  the  income-tax  reports  furnished  no  information  concern- 
ing rents  and  royalties.  For  the  earlier  years,  therefore,  it  was  assumed 
that  the  non-reported  rents  varied  in  approximately  the  same  manner  as 
did  those  in  the  reporting  industries. 

The  results  of  these  assumptions  concerning  the  aggregate  of  rents 
appear  in  Table  19B. 

TABLE  19B 

AN  ESTIMATE  OF  THE  TOTAL  OF  CONTRACT  RENTS  IN  UNCLASSIFIED 

FIELDS  OF  INDUSTRY 


A 

B 

C 

D 

Year 

Total  contract 
rents  in  the 
United  States  a 
(Millions) 

Contract  rents 

accounted  for  in 

all  industries 

having  records 

of  rents  a 

(Millions) 

Contract  rents 

not  otherwise 

accounted  for 

(Millions) 

B  — C 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

$    668 
705 
732 
776 
817 

833 

883 

1,000 

1,150 

1,290 

$    550 
580 
601 
637 
669 

681 
720 
813 
932 

1,027 

$118 
125 
131 
139 
148 

152 
163 

187 
219 

1918 

263 

°  For  derivation,  see  the  text. 

§  19g.  The  Total  Share  of  Enterprise  and  Property 

Table  19C  summarizes  the  different  items  entering  into  the  share  of 
enterprise  and  property  in  the  unclassified  field  and  reduces  the  total  to 


* 


UNCLASSIFIED  INDUSTRIES  AND  MISCELLANEOUS  INCOME    227 

terms  of  purchasing  power.  The  index  used  for  the  last  mentioned  purpose 
is  a  combination  of  the  indices  of  prices  of  goods  used  by  the  workers  and 
by  consumers  of  moderate  means.  This  index  is  chosen  because  many  of 
the  small  proprietors  have  no  more  income  than  the  well-to-do  workers; 
hence  their  type  of  consumption  is  probably  essentially  similar  to  that  of 
employees. 

TABLE  19C 

AN  ESTIMATE  OF  THE  SHAKE  OF  THE  EXTREI'REXEERS  AND  OTHER 
PROPERTY  OWNERS  IN  THE  NET  VALUE  PRODUCT  OF  UNCLASSI- 
FIED INDUSTRIES 


A 

B 

C 

D 

E 

F 

G 

Profits  accrued  plus 

Total  share 

Purchasing 
power  of 

interest." 

of  entrepre- 

share of 

Paid  out  by 

Contract 

neurs  and 

Index  of 

entrepre- 

Year 

prices  of 
goods 

neurs  and 
other 

Private 

royalties  '■ 

property 

Corpora- 

(Millions) 

owners 

consumed  <• 

property 

tions  6 

entre- 

(Millions) 

owners 

(Millions) 

preneurs  b 

B  +  C+D 

(Millions) 

(Millions) 

E4-F 

1909 

$    848 

$2,232 

$118 

$3,198 

.955 

S3.348 

1910 

919 

2,360 

125 

3.404 

.977 

3,484 

1911 

862 

2,395 

131 

3,388 

.984 

3,443 

1912 

!(6f, 

2,582 

139 

3,687 

.998 

3,702 

1913 

1,008 

2,652 

148 

3,808 

1.000 

3,808 

1914 

909 

2,5s:  i 

1 52 

3,644 

1.011 

3,604 

1915 

1,014 

2,723 

L63 

3,899 

1.016 

3,838 

1916 

1,569 

3,609 

1S7 

5,364 

1.094 

4,903 

1917 

1,834 

4,601 

219 

6,654 

1.271 

5,235 

1918 

1,047 

4,601 

263 

5,911 

1.514 

3,904 

a  Evidence  from  the  income  tax  reports  indicates  that  total  bond  or  mortgage  in- 
terest is  only  about  one-hundredth  as  groat  as  profits. 

6  For  mode  of  estimation,  see  text. 

c  Average  of  indices  representing  respectively  the  consumption  of  working  people 
and  of  families  spending  $5,000  each  annually  for  consumption  goods. 


The  chief  points  of  importance  brought  out  by  Table  19C  are:  first, 
that  contract  rents  form  a  relatively  small  part  of  the  total;  second,  that 
private  and  not  corporate  entrepreneurs  dominate  this  field;  and  third, 
that  1916  and  1917  were  extremely  profitable  years  for  the  entrepreneurs 
here  as  well  as  elsewhere. 

§  19h.  Other  Classes  of  Miscellaneous  Income 

There  is  a  very  considerable  aggregate  of  income  which  forms  part  of 
the  total  for  the  nation  but  which  cannot  legitimately  be  considered  as 


228  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 

being  derived  from  any  of  the  fields  of  industry  yet  discussed.    This  income 
has  been  treated  under  four  heads: 

1.  Net  rental  value  of  owned  homes. 

2.  Interest  on  value  of  miscellaneous  direct  or  consumption  goods  on 
hand.1 

3.  Profits  from  cow-keeping  in  villages  or  cities. 

4.  Profits  accruing  to  urban  dwellers  from  the  keeping  of  poultry  and 
the  raising  of  gardens. 

§  19i.  The  Net  Rental  Value  of  Owned  Homes 

The  net  rental  value  of  owned  homes  has  been  calculated  by  following 
the  assumption  that  the  value  per  person  amounted  to  $50  in  1913  2  and 
varied  therefrom  in  proportion  to  the  index  of  rents.  Since  farm  homes 
are  accounted  for  under  agriculture,  it  remains  only  to  estimate  the 
amount  for  urban  homes.  The  figures  in  Vol.  I,  p.  1294  of  the  Population 
Census  for  1910  indicate  that  4,411,000  of  these  homes  were  occupied 
by  the  owners.  At  4.492  persons  per  home,  they  would  house  19,820,000 
people.  This  number  presumably  has  varied  about  in  proportion  to  the 
size  of  that  part  of  the  population  not  living  on  farms.  This  fraction  of 
the  population  has  therefore  been  estimated  for  each  year  on  the  basis  of 
the  Census  reports.  The  resulting  numbers  have  been  multiplied  by  the 
average  amount  allowed  for  rent.  The  results  and  some  of  the  processes 
appear  in  Table  19D. 

§  19 j.  Interest  on  the  Value  of  Direct  Goods 

It  is  common  to  think  of  residences  as  representing  investments  upon 
which  an  allowance  must  be  made  to  represent  current  income  to  the 
owner,  but  it  is  less  usual  to  consider  other  durable  consumption  goods  in 
the  same  manner.  Evidently  they  are  in  exactly  the  same  category,  the 
only  differences  being  that  residences  represent  a  larger  aggregate  of  value 
in  one  unit,  hence  attracting  more  attention,  and  that  they  are  a  type  of 
goods  very  frequently  leased  and  dealt  in  as  commodities,  while  automo- 
biles, pictures,  clothing,  furniture,  etc.,  are  seldom  rented  and  very  com- 
monly do  not  change  ownership  again  after  leaving  the  hands  of  the 
dealer.  Logically,  a  net  rental  for  the  entire  stock  of  consumption  goods 
on  hand  must  be  estimated  and  added.  Practically  no  information  is 
available  which  makes  possible  an  estimate  of  this  kind.    The  nearest  feasi- 

1  Colonel  M.  C.  Rorty  (one  of  our  directors)  believes  that  this  item  should  be  omitted 
from  the  total.    The  problem  is  discussed  in  §  19j. 

2  In  1913,  the  per  capita  income  of  the  average  inhabitant  of  the  United  States  was  about 
$350.  The  income  of  home  owners  was  presumably  materially  larger  than  the  average  in- 
come— perhaps  $500  per  capita.  Numerous  studies  seem  to  indicate  that  the  gross  rental 
of  homes  is  likely  to  amount  to  about  15  per  cent,  of  the  family  income.  If  the  net  rental 
equalled  two-thirds  of  the  gross  rental  it  would  then  amount  to  ^  X  i\fo^  $500,  or  $50. 


I 
I 


UNCLASSIFIED  INDUSTRIES  AND  MISCELLANEOUS  INCOME    229 


TABLE  19D 


THE  ESTIMATED  NET  RENTAL  VALUE  OF  THOSE  HOMES  IX  CITIES 
AND  VILLAGES  OF  THE  CONTINENTAL  UNITED  STATES  WHICH  ARE 
OCCUPIED  BY  THE  OWNERS 


A 

B 

C 

D 

E 

F 

Year 

Number  of 
urban  families 

residing  in 
owned  homes 
(Thousands) 

Population 

of 

United  States 

not  residing 

on  farms  b 

(Thousands) 

61,830 
63,629 
65,211 

66,748 
68,698 

70,654 
71,928 
73,262 

74,639 
75,792 

Population 

Of  cities 

and  villages 

residing  in 

owned  homes ' 

(Thousands) 

Net  rental 

value  per 

person  of 

homes  owned  c 

Total  net 
rental  value  of 
owned  homes 

(Millions) 
DX  E 

1909. . 
1910. . 
1911. . 
1912   . 
1913.. 

1914.. 
1915.. 
1916 
1917. . 
1918.. 

4,411a 

19,230 
19,820 
20,2!  10 
20,780 
21,390 

22,001) 
22,360 
22,800 
23,230 
23,590 

$48.50 

50  50 
50.50 
50.00 
50.00 

50.00 
50.50 

51  .00 
50.50 

52 .  50 

$    933 
l.Olil 
1,025 
1,039 

1,069 

1,100 

1,129 
1,163 
1 , 1 73 
1,238 

a  Derived  from  the  Census  of  Population  for  1910,  Vol.  I,  p.  1204,  by  apportioning 
the  unreported  and  encumbered  homes — the  latter  on  the  basis  of  full  ownership. 
b  Estimated  from  the  Census, 
c  For  mode  of  derivation,  see  the  text. 


ble  approach  to  such  a  figure  is  arrived  at  by  applying  an  assumed  interest 
rate  to  the  value  as  reported  by  the  Census  of  W<alth,  Debt,  and  Taxation 
and  then  proceeding  to  make  estimates  for  other  years  based  upon  the 
variations  in  an  index  representing  a  product  of  the  prices  of  durable  eon- 
sumption  goods  and  the  population  of  the  United  States.  Such  an  est  iinat  e 
is  made  in  Table  19E. 


§  19k.  Profits  from  Cow-Keeping 

The  basis  for  computing  the  profits  from  cows  kept  in  cities  and  villages 
is  very  slender  but  this  is  not  a  matter  of  very  great  moment  since  the  total 
is  relatively  unimportant. 

Once  in  a  decade,  the  Census  of  Agriculture  records  the  number  of  milk 
cows  not  on  farms.  It  was  found  by  the  United  States  Public  Health 
Service  through  a  special  study  that  the  average  profil  obtained  from  keep- 
ing a  cow  in  South  Carolina  was  about  $75  per  year.  This  amount  has 
been  varied  from  year  to  year  according  to  an  index  number  of  the  price  of 
daily  products  and  then,  in  order  to  obtain  the  total  entered  in  Table  I'.'l', 


230  THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  19E 


AN  ESTIMATE  OF  THE  INTEREST  OX  THE  INVESTMENT  IN 
CONSUMPTION  GOODS  OTHER  THAN  RESIDENCES 


A 

B 

C 

D 

E 

F 

G 

H 

Index  of 

Index  of  total 

Interest  eon 

Year 

price  of 
durable 
consump- 
tion 
goods" 

Population 

of  the  U.  S. 

in 
thousands c 

value  of 
consumption 

goods 
(Thousands) 

B  X  C 

consumption 

goods, 

(Census  figures^ 

(Millions) 

Ratio  of 
E  to  D 

consumption 
goods 

(Millions) 
D  X  F 

investment 
in  consump- 
tion goods 
(Millions) 
.06  G 

1904... 

.986 

82,467  b 

81,310 

$  8,250  d 

101.5/ 

$  8,250 

$    496 

1909 .  .  . 

1.044 

90,370 

94,350 

119. 8» 

11,300 

678 

1910.. . 

1.050 

92,229 

96,840 

121.9* 

11,800 

708 

1911.  .  . 

1.056 

93,811 

99,060 

124.8s 

12,360 

742 

1912. . . 

1.029 

95,338 

98,100 

12,758  d 

130.1/ 

12,758 

765 

1913... 

.993 

97,278 

96,600 

133 . 8  a 

12,920 

775 

1914... 

.987 

99,194 

97,900 

136.2s 

13,330 

800 

1915.  .  . 

.980 

100,428 

98,420 

140. 9s 

13,870 

832 

1916. . . 

1.059 

101,722 

107,720 

145. Off 

15,620 

937 

1917. . . 

1 .  143 

103,059 

117,800 

147. 6ff 

17,390 

1,043 

1918... 

1   362 

104,182 

141,900 

149. 3ff 

21,190 

1,271 

1919.  .  . 

1.642 

104,847 

172,160 

156.0 ff 

26,860 

1,612 

a  Weighted  as  follows:  Furniture  4,  Clothing  3,  Automobiles  3. 

b  Statistical  Abstract  of  the  United  States,  1918,  p.  776. 

c  Estimated  for  the  intercensal  years  by  means  of  a  special  study;  see  Table  2A. 

d  Census  of  Wealth,  Debt,  and  Taxation,  1913,  Vol.  I,  p.  17. 

e  Rate  arbitrarily  assumed  to  be  6  per  cent  throughout,  since  the  real  object  sought 
is  to  measure  rents,  not  interest,  and  the  relationship  between  rents,  interest,  and  values 
is  not  known  for  the  various  years.  /Computed  by  division. 

o  Interpolated  along  a  smooth  curve. 

this  estimated  average  profit  has  been  multiplied  by  the  number  of  cows 
kept. 

§  191.  Profits  from  Raising  Poultry  and  Gardens 

The  estimated  profit  on  poultry  and  gardens  is  only  a  refined  guess. 
The  starting  point  is  an  estimate  for  1909  of  $70,300,000  which  is  based  on 
the  idea  that  the  average  family  garden  and  poultry  supply  gives  a  net 
gain  of  .$25.00  per  year  and  that  the  fractions  of  families  having  such 
income  were  as  follows  for  cities  of  the  sizes  stated: — 


Population  of  city  or  village 

Fraction  of  families 

Under  10,000 
10,000  to  50,000 
50,000  to  100,000 
100,000  to  250,000 
250,000  and  over 

0.50 
.33 
.25 
.12 

.06 

All  index  has  been  computed,  based  on  the  product  of  the  population  of 


, 


UNCLASSIFIED  INDUSTRIES  AND  MISCELLANEOUS  INCOME    231 

cities  and  villages  of  less  than  250,000  inhabitants  and  the  average  price  of 
foods  and  farm  products.  The  estimated  value  has  then  been  varied  from 
year  to  year  in  proportion  to  the  movements  of  this  index.  The  resulting 
amounts  are  entered  in  Table  19F. 

TABLE  19F 

A  SUMMARY  OF  THE  ESTIMATES  OF  INCOME  FROM  MISCELLANEOUS 

SOURCES 


Millions  of  dollars 

Year 

Total 

Rental  value 

of  owned 
urban  homes  a 

Interest  oil 

value  of  other 

consumption 

goods  b 

Profits 
from  keep- 
ing cows 
in  cities 
and  vil- 
lages 

Protits  from 
gardening 
and  poultry 
raising 

in  cities 
and  villages  c 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

$1,740 
1,840 
1,901 
1,946 
1,986 

2,048 
2,112 
2,277 
2,468 
2,876 
3,308 

$    933 
1,001 
1,025 
1,039 
1,069 

1,100 
1,129 
1,163 
1,173 
1,238 
1,356 

$    678 
70s 
742 
76.-) 
775 

800 

832 

937 

1,043 

1,271 

1,612 

$  59 
60 
61 
60 
61 

62 
62 
69 
90 
11  1 
L29 

S  70 
71 
73 
82 
81 

86 
89 

IDS 

162 
253 
211 

a  See  Table  19D,  Column  F. 
b  See  Table  19E,  Column  H. 
c  For  mode  of  derivation,  see  the  text. 


§  19m.  The  Division  of  the  Net  Value  Product 

A  statement  of  the  fraction  of  all  unclassified  and  miscellaneous  income 
paid  out  as  wages  and  salaries  is  not  very  significant  because  of  the  fact 
that  no  inconsiderable  part  of  the  "miscellaneous  income"  accrues  to 
persons  attached  to  already  recorded  industrial  fields.  For  example, 
persons  engaged  in  manufacturing,  transportation,  or  mining  may  receive 
income  from  the  rental  value  of  the  homes  they  occupy  or  from  other  con- 
sumption goods  owned  or  they  may  obtain  profit  by  raising  poultry  or 
gardens  in  their  spare  time.  For  these  reasons,  it  seems  best  to  present 
two  columns  for  the  per  cent  of  the  income  going  to  the  employees  in  the 
form  of  wages  and  salaries.  The  last  one  has  significance  only  as  a  balance 
item.  The  fact  that  it  is  so  much  lower  than  the  preceding  column  helps 
to  show  why  the  per  cent  for  all  indusl  ries  runs  so  much  lower  than  does  t  he 
average  of  the  per  cents  for  manufacturing,  mining,  etc. 


232 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


Column  F  represents  the  industries  in  this  group  and  is  entirely  com- 
parable with  similar  figures  for  other  industrial  fields.  According  to  these 
figures,  employees  in  unclassified  industries  receive  in  the  form  of  salaries 
and  wages  about  the  same  fraction  of  the  net  value  product  that  prevails 
on  the  average  in  the  other  industrial  fields.  The  percentage  has,  however, 
shown  a  decline  since  1916,  a  phenomenon  which  is  not  characteristic  of 
most  of  the  other  lines  studied. 

Owing  to  the  heterogeneous  nature  of  the  items  involved,  it  seems 
useless  to  attempt  to  carry  further  the  analysis  of  the  data  pertaining  to 
unclassified  industries  and  miscellaneous  income. 

TABLE  19G 

THE  ESTIMATED  NET  INCOME  ARISING  FROM  UNCLASSIFIED  IN- 
DUSTRIES AND  MISCELLANEOUS  SOURCES  AND  THE  FRACTION 
THEREOF  PAID  OUT  AS  WAGES  AND  SALARIES 


A 

B 

C 

D 

E 

F 

G 

Year 

Total 

income  for 

these  fields 

(Millions) 

Earnings  of 
employees 

in 

unclassified 

industries  n 

(Millions) 

Profits  and 

contract 

rents  in 

unclassified 

industries  6 

(Millions) 

Income 
from  mis- 
cellaneous 

sources c 
Millions) 

Per  cent  of 
paid  to  em 
wages  and  s 

LTnclassified 

industries 

C 

total  income 
ployees  as 
salaries  from 

The  total 
income 
C^  B 

C  +  D 

1909  .  .  . 

1910  .  .  . 

1911  ..  . 

1912  .  .  . 

1913  .  .  . 

1914  ... 

1915  .  .  . 

1916  .  .  . 

1917  ... 

1918  .  .  . 

S  9,824 
10.722 
10,7m, 
11,796 
12,332 

11,975 
12.367 
14,685 
16,506 
15,318 

$4,887 
5,478 
5,497 
6,164 
6,538 

6,284 
6,356 
7,043 
7,384 
6,531 

$3,198 
3.404 
3,388 
3,687 
3,808 

3,644 
3,899 
5,364 

6.651 
5.911 

$1,740 
1,840 

1,901 
1,946 
1,986 

2,048 
2,112 
2,277 
2.468 
2,876 

60.4 
61.7 
61.9 
62.6 
63.2 

63.3 
62.0 
56.8 
52.6 
52 . 5 

49.7 

51  1 
51.0 

52  3 
53.0 

52.5 
51.4 

ISO 
44.7 
42.6 

a  See  Table  19A,  Column  D. 
'  See  Table  19C,  Column  E. 
c  See  Table  19F,  Total. 


CHAPTER  20 

SUMMARY  OF  PART  I 

§  20a.  The  Average  Income  per  Ammain 

It  has  long  been  customary,  when  comparing  different  groups  of  persons, 
to  use  the  per  capita  income  of  each  group  as  a  measure  of  its  relative 
economic  welfare.  This  measure  is,  on  the  whole,  sufficiently  accurate 
when  applied  to  large  groups  containing  single  persons  and  families  of  all 
sizes.  It  is,  however,  nearly  valueless  if  the  comparison  is  between  classes 
determined  by  age,  sex,  marital  condition,  or  social  status.  In  such  classi- 
fications, the  fact  that  persons  differing  in  sex  and  age  require  very  differ- 
ent incomes  in  order  to  live  in  the  same  degree  of  comfort  becomes  of  para- 
mount importance.  To  give  validity  to  comparisons  in  such  instances  it 
is  necessary  first  to  reduce  all  members  of  the  population  to  homogeneous 
units  based  upon  the  relative  need  for  commodities.  Such  units  are  termed 
ammains.  .  An  ammain  is  defined  as  a  gross  demand  for  articles  of  con- 
sumption having  a  total  money  value  equal  to  that  demanded  by  the  average 
male  in  that  class  at  the  age  when  his  total  requirements  for  expense  of  main- 
tenance reach  a  maximum.  The  number  of  ammains  in  each  group  of  per- 
sons can  be  approximated  by  aid  of  tables  which  are  available.1  Having 
ascertained  the  number  of  ammains  it  is  only  necessary  to  divide  the  total 
income  of  the  group  by  this  number  to  ascertain  the  average  income  per 
ammain  for  the  group.  There  seems  to  be  little  doubt  that  the  income  per 
ammain  is  the  best  unit  yet  devised  for  use  in  comparing  the  relat  ive  eco- 
nomic status  of  persons  and  families  in  different  groups  of  the  population. 

Inasmuch  as  we  do  not  know  the  exact  income  of  the  nation  and  since 
the  age  and  sex  composition  of  the  population  is  recorded  only  once  in  ten 
years,  it  is  impossible  to  compute  the  average  income  per  ammain  for  the 
entire  country  with  any  high  degree  of  accuracy.  Since,  however,  the  age 
and  sex  distribution  of  the  population  of  a  great  nation  changes  very  slowly, 
it  is  possible  to  state  the  average  income  per  ammain  with  nearly  as  high 
a  degree  of  accuracy  as  that  attainable  in  the  estimate  of  the  total  national 
income.  It  may  often  be  desirable  to  compare  tin1  income  per  ammain  of 
different  groups  of  persons  with  the  average  for  the  entire  country.  In  order 
to  facilitate  comparisons  of  this  type  Table  20A  is  presented.  It  gives  an 
estimate  for  each  year  of  the  number  of  ammains  and  the  average  income 
per  ammain  for  the  entire  population  of  the  Continental  United  States. 

•See  the  Quarterly  Publications  of  the  American  Statistical  Association,  Sept..  1921,  p.  s."l, 
the  Journal  of  Political  Economy,  July,  1921,  or  the  United  States  Public  Health  Reports  for 
Nov.  26,  11)20. 

233 


234 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  20A 


THE  AVERAGE  INCOME  PER  AMMAIN   OF  THE  POPULATION  OF  THE 

CONTINENTAL  UNITED  STATES 


Calendar 
year 


1909. 
1910. 
1911. 
1912. 
1913. 

1914. 
1915. 
1910 . 
1917 
1918. 


Total  income  in  dollars  of 


The  given 

year 
(Millions) 


$28,775 
31,700 
31,188 
33,554 
35,580 

33,930 
30,109 
45,418 
53,860 
00,300 


1913  value 
(Millions) 


$30,101 
32,477 
31,080 
33,730 
35,580 

33,596 

35,335 
41,205 
41,910 
39,112 


Number  of 

ammains  in 

the  entire 

population 

(Thousands) 


02,340 
03,027 
04,720 
05,703 
07,104 

08,430 
09,290 
70,175 
71,100 
71,875 


Income  per  ammain  in 
dollars  of 


The  given 
year 


$402 
499 
482 
510 
530 

490 
521 

047 
757 
840 


1913  value 


.$483 
510 
490 
513 
530 

491 
510 

588 
589 
544 


§  20b.  Business  Savings 

Table  20B  summarizes  the  estimates  of  business  savings  presented 
separately  in  the  reports  for  certain  industries.  In  general,  business  sav- 
ings, as  recorded,  represent  increases  during  the  period  in  the  total  net 
worth  of  all  enterprises  in  the  field.  The  figures  for  "Agriculture,"  how- 
ever, represent  only  the  changes  from  year  to  year  in  the  value  of  tangible 
agricultural  property.  Increases  in  the  total  value  of  farm  land  due  to  a 
rise  in  the  average  price  per  acre  are,  however,  excluded.  Changes  in  the 
value  of  the  farmers'  bank  accounts  and  investments  in  properties  outside 
the  agricultural  field  are  not  included  because  the  necessary  data  are  lack- 
ing. The  farmers'  personal  savings  and  business  savings  are  indistin- 
guishable, hence  no  effort  has  been  made  to  make  any  artificial  division  of 
the  savings  into  these  two  categories.  For  the  reasons  just  cited,  agricul- 
tural savings  are  not  entirely  comparable  with  the  business  savings  of 
other  fields. 


SUMMARY  OF  PART  I  235 

§  20c.  Miscellaneous  Summary  Tables  Not  Appearing  in  Volume  I 

In  Table  20H,  the  amounts  saved  by  reporting  non-agricultural  business 
enterprises  are  recorded  in  Column  F.  Now,  in  many  industries,  records 
of  savings  are  not  available,  but  it  is  nevertheless  desirable,  if  possible, 
to  make  a  rough  estimate  of  the  savings  of  all  business  enterprises  in  the 
nation.  The  estimate  here  presented  is  based  upon  the  assumption  that 
the  non-reported  and  reported  industries  have  each  saved  the  same  fraction 
of  the  income  available  for  distribution  to  entrepreneurs  and  other  prop- 
erty owners.  In  making  this  calculation,  "Government"  has  not  been 
considered  a  business  enterprise  and  "Miscellaneous  Income"  has  not  been 
considered  as  business  income  because  such  a  large  share  of  it  accrues  to 
individuals  as  private  income.  After  estimating  the  business  savings  for 
all  non-agricultural  industries,1  the  increase  in  the  value  of  farm  property 
other  than  land  has  been  added  in  order  that  the  total  may  roughly  repre- 
sent the  business  savings  of  the  entire  United  States. 

The  estimate  thus  arrived  at  indicates  that  the  business  enterprises  of 
the  nation  normally  lay  aside  from  5  to  10  per  cent  of  the  national 
income  before  distributing  the  remainder  of  their  net  receipts  to  the  per- 
sonal accounts  of  their  owners  in  the  form  of  dividends  (or  other  profits), 
rent,  or  interest.  The  amount  of  this  type  of  saving  increases  sharply  in 
years  of  business  prosperity  and  falls  off  again  greatly  in  times  of  depres- 
sion. During  the  decade,  business  enterprises  apparently  saved  about 
30  per  cent  of  the  aggregate  amount  which  they  might  have  disbursed  to 
entrepreneurs  and  other  property  owners.  Doubtless  no  inconsiderable 
share  of  the  disbursed  income  is  also  saved  by  the  recipients,  but  the 
amount  so  laid  aside  is  purely  a  matter  of  conjecture.  The  volume  of  busi- 
ness savings  alone  is  however  so  large  as  to  demand  the  careful  considera- 
tion of  all  persons  interested  in  questions  of  distribution  of  income. 

1  Includes  "unclassified"  industries. 


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242 


THE  ESTIMATE  BY  SOURCES  OF  PRODUCTION 


TABLE  20E 


AN  ESTIMATE  OF  THE  TOTAL  AMOUNT  OF  WAGES  AND  SALARIES"  PAID  BY  THE 
VARIOUS  BRANCHES  OF  INDUSTRY  IN  THE  CONTINENTAL  UNITED  STATES 


Industry 


All  industries 

Agriculture. .  . 

Mining  6 

Factories  c  .  .  . 
Construction 
Other  Hand 
Trades 


Railways  d .  . 
Pullman  Co. 
Express 


Street  and 
Electric 
Railways. . 

Electric 
Light  and 
Power.  .  .  . 

Telegraphs.  . 

Telephones. . 

Transporta- 
tion by.  .  . 
water 


Banking 

Government  e 
Unclassified 
industries .  . 


Millions  of  dollars  paid  in  the  year 


1909 

14,960 

717 

612 

4,366 

1,192 

295 

1,092 

s 
36 


171 


40 
IS 

SI 


173 

115 
1,157 

4,887 


1910 


10,265 

716 

676 

4.790 

1,146 

327 

1,205 

9 

39 


181 


47 
19 
91 


182 

123 
1,236 

5,478 


1911 


16,498 

756 

698 

4,805 

1,104 

339 

1,261 

9 

42 


191 


50 
22 

103 


184 

137 
1,300 

5,497 


1911 


is, 1)92 

761 

752 

5,310 

1,218 

362 

1,350 
10 
46 


201 


56 

26 
112 


197 

149 
1,378 

6,164 


1913 


19,450 

786 

832 

5,890 

1,276 

391 

1,416 
14 
47 


214 


59 
27 

125 


204 

161 

1,470 

6,538 


1914 


18,216 

767 

718 

5.366 

932 

404 

1,310 
14 
44 


224 


62 

26 

128 


202 

164 
1,571 

6,284 


1915 


19,019 

786 

727 

5,892 

927 

425 

1,322 
13 
45 


222 


63 

26 

126 


222 

183 

1,684 

6,356 


1916 


23,175 

848 

894 

8,442 

1,066 

47S 

1,547 
14 
52 


242 


71 

31 

145 


274 

214 
1,814 

7,043 


1917 


27,365 

1.059 

1,112 

10,530 

973 

603 

1,908 
15 
64 


267 


86 

40 

170 


334 

230 
2,530 

7,384 


1918 


32,076 

1.251 
1.354 

12,410 
964 

780 

2.741 
20 
82 


314 


97 

49 

190 


421 

281 
4,591 

6.531 


a  Includes  subsistence  furnished  to  employees,  but  excludes  pensions,  compensation  for  injuries,  com- 
missions, tips,  and  payments  for  work  done  under  contract. 
b  Includes  quarries  and  oil  wells. 

c  The  field  covered  by  the  principal  tables  in  the  Census  of  Manufactures. 
d  Includes  switching  and  terminal  companies. 
e  Includes  all  branches  of  government — national,  state  and  local. 


, 


SUMMARY  OF  PART  I 


243 


TABLE  20F 


AN  ESTIMATE  OF   THE   TOTAL    DISBURSEMENTS  TO  PAST  <>R   PRESENT    EMPLOYEES 
IN  THE  FORM  OF  WAGES, a  SALARIES,*"  PENSIONS,  COMPENSATION   FOR   INJURIES, 

AND  PAYMENTS  FOR  WORK  DONE   UNDER  CONTRACT 


Industry 

Millions 

of  dollar? 

paid  in  the  year 

1909 

1910 

1911 

ir,, so:, 

1912 

1913 

1914 

1915 

1916 

1917 
27,795 

1918 

All  industries 

15,255 

16,570 

18,417 

19,801 

18,552 

19,355 

23,558 

32,575 

Agriculture. .  . 

717 

7  ir, 

756 

761 

786 

707 

786 

Ms 

1,059 

1,251 

Mining  b 

643 

711 

733 

790 

874 

755 

704 

939 

L.169 

1.422 

Factories  c. .  .  . 

4,410 

l.s;is 

1,852 

5,361 

5,946 

5,410 

5,945 

8,517 

10,621 

12,515 

Construction 

1,192 

1,146 

1.101 

1,218 

1,270 

932 

927 

1,066 

973 

'.Mil 

Other  Hand 

Trades 

306 

339 

351 

375 

404 

418 

439 

496 

628 

SI  1 

Railways  d.  .  . 

1,105 

1,219 

1,277 

1,307 

1,434 

1,328 

1,339 

1,500 

L.990 

2.703 

Pullman  Co.  . 

10 

11 

12 

13 

17 

17 

16 

17 

19 

21 

Express 

43 

47 

51 

54 

55 

52 

52 

(il 

71 

93 

Street  and 

Electric 

Railways. .  . 

171 

181 

191 

201 

21 1 

224 

222 

212 

267 

314 

Electric 

Light  and 

Power 

40 

47 

50 

56 

59 

62 

63 

71 

86 

97 

Telegraphs.  .  . 

18 

19 

22 

26 

27 

26 

26 

32 

to 

49 

Telephones. .  . 

81 

92 

103 

113 

126 

129 

12S 

154 

173 

194 

Transporta- 

tion hv 

Water 

173 

1S2 

184 

197 

204 

202 

222 

271 

334 

421 

Banking 

115 

123 

137 

149 

101 

164 

1 83 

214 

230 

281 

Government e 

1,343 

1,421 

1,486 

1,574 

1,678 

1,777 

1,886 

2,017 

2.710 

1,842 

Unclassified 

industries.  . 

1,887 

5,478 

5,497 

6,104 

6.53S 

6,284 

6,356 

7,043 

7,384 

6,531 

a  Includes  subsistence  furnished  to  employees. 

b  Includes  quarries  and  oil  wells. 

c  The  field  covered  by  the  principal  tables  in  the  Cmsus  of  Manufactures. 

d Includes  switching  and  terminal  companies. 

e  Includes  all  branches  of  government — national,  state,  and  local. 


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PART   II 

THE  ESTIMATE  BY  INCOMES  RECEIVED 

By 
OSWALD  W.  KNAUTH 

ASSISTED  BY 

ELIZABETH   W.    PUTNAM 
MRS.   EUSTACE   SELIGMAN" 


^ 


CHAPTER  21 

INTRODUCTION 

§  21a.  The  Problem 

The  estimate  of  the  National  Income  on  the  basis  of  incomes  received 
attempts  to  find  and  summate  the  money  values  of  the  incomes  of  all  per- 
sons who  are  reported  by  the  Census  as  "gainfully  employed."  The  the- 
ory underlying  this  estimate  is  that  all  of  the  National  Income  in  every 
year  must  be  received  by  some  person.  An  addition  must,  however, 
be  made  for  the  surplus  incomes  of  corporations  which  are  carried 
forward  after  the  current  distributions  to  stockholders  have  been  made. 
Owing  to  the  form  in  which  our  data  are  available,  it  has  not  been  pos- 
sible to  distribute  these  amounts  among  individuals,  and  it  is  therefore 
necessary  to  add  them  in  a  lump  sum  to  the  individual  incomes  in  order 
to  arrive  at  the  total  National  Income.  If  the  data  were  perfect  and 
the  methods  impeccable  in  both  cases  the  results  of  this  estimate  would 
agree  with  the  results  of  the  Estimate  by  Sources  of  Production  presented 
in  Part  I. 

Needless  to  say,  neither  the  data  nor  the  methods  are  perfect  in  either 
case.  The  theory  on  which  the  two  estimates  are  based  is  discussed  in 
Section  iv  of  Chapter  II,  Volume  I,  but  it  may  save  misunderstanding  to 
note  again  the  omission  of  certain  items  that  contribute  to  the  economic 
welfare  of  the  community,  and  the  intention  to  omit  one  item  that  counts 
as  money  income  to  individuals.  It  is  not  feasible  to  include  items  of 
income  on  which  a  money  value  is  not  commonly  placed.  For  example, 
no  allowance  is  made  for  the  services  rendered  the  community  by  such 
public  works  as  roads  and  bridges,  beyond  the  income  received  by  those 
who  work  upon  them.  Nor  is  any  attempt  made  here  to  set  a  money  value 
upon  the  services  rendered  by  housewives  to  their  families.  On  the  other 
hand,  we  do  include  two  items  which  do  not  enter  into  exchange,  but  which 
may  apparently  be  measured  with  reasonable  accuracy.  These  are  the 
rental  values  of  homes  owned  by  the  persons  who  occupy  them,  and  the 
produce  of  the  farms  directly  consumed  by  farmers.  In  addition,  we  in- 
clude some  spurious  income  nrisino-  from  accretions  to  the  money  value  of 
property  unchanged  in  quality  and  quantity.  Such  items  as  the  rise  in 
the  prices  of  building  lots  do  not  increase  the  volume  of  serviceable  goods 
at  the  disposal  of  the  Nation  and  therefore  such  items  should  not  be  in- 

24!) 


250  THE  ESTIMATE  BY  INCOMES  RECEIVED 

eluded  in  ;i  statement  of  the  National  Income.  But  the  individuals  who 
own  these  lots  may  get  personal  income  from  the  rise  in  land  values,  and 
income  resulting  from  sales  of  property  at  enhanced  prices,  is  supposed  to 
be  included  in  the  income-tax  returns  on  which  this  estimate  is  largely 
based.  During  the  period  covered  by  the  present  investigation,  however, 
it  seems  probable  that  the  error  arising  from  this  source  is  not  serious,  for 
the  high  rates  of  taxation  imposed  at  the  time  when  prices  were  rising  to 
their  maximum  discouraged  the  sale  of  property  that  had  appreciated  in 
value,  and  encouraged  "  loss-taking "  sales  of  property  that  had  fallen  in 
value. 

§  21b.  The  Method  and  Data 

The  method  adopted  in  making  the  Estimate  by  Incomes  Received  was 
determined  largely  by  the  character  of  the  data  that  were  available.  The 
largest  and  most  accurate  body  of  material  is  found  in  the  income-tax 
returns.  Here  are  definite  figures  regarding  the  number  and  aggregate 
amount  of  personal  incomes  above  the  exemption  limits  set  by  law — 
$3,000  from  1913  (when  the  present  income  tax  was  first  levied)  to  1916, 
and  $2,000  from  1917  onwards.  These  returns  have  well-known  defects, 
but  defects  which  can  be  corrected  in  some  measure.  A  second  great  body 
of  material  is  the  mass  of  wages  data  collected  by  federal,  state  and  city 
governments.  Such  data  make  it  possible  to  estimate  the  aggregate 
incomes  of  the  millions  of  those  wage-earners  and  others  gainfully  em- 
ployed who  make  no  income-tax  returns. 

The  income-tax  data  have  to  be  supplemented  by  estimates  for  income 
exempt  by  law  from  taxation — especially  certain  state  salaries,  interest 
on  tax-free  securities,  and  the  rental  value  of  houses  occupied  by  their 
owners.  More  important  and  more  speculative  are  the  corrections  that 
must  be  made  for  failure  to  report  incomes  subject  to  tax  and  for 
understatement  of  reported  incomes.  Similarly  in  the  chapter  deal- 
ing with  incomes  less  than  $2,000  per  year,  we  cannot  accept  wages 
earned  as  equivalent  to  income  received.  Here  the  chief  supplements 
include  the  rental  value  of  owned  homes,  income  from  property  and 
pensions. 

The  character  of  these  materials,  it  will  be  noted,  makes  it  necessary  to 
divide  the  Estimate  by  Incomes  Received  into  two  sections,  persons  re- 
ceiving more  and  persons  receiving  less  than  $2,000  per  year.  This  division 
at  the  $2,000  line  is  probably  as  satisfactory  as  any  other  arbitrary  division 
that  could  be  selected.  A  little  below  this  line  we  approach  the  minimum 
budget  on  which  a  family  can  maintain  efficiency,  while  a  little  above 
$2,000  we  enter  the  range  of  modest  comfort.  For  an  individual  without 
dependents  we  have  on  the  lower  side  sufficiency,  on  the  upper  side,  ease. 


INTRODUCTION  251 

Of  course,  any  arbitrary  line  of  division  maintained  through  a  period  of 
such  wild  fluctuations  in  the  cost  of  living  as  occurred  during  the  war  is 
open  to  the  objection  that  the  economic  welfare  represented  by  it  was  con- 

stantly  changing.  This  defect  we  remedy  so  far  as  possible  by  computing 
the  average  per  capita  income  of  income-receivers,  and  by  showing  the 
fluctuations  in  the  purchasing  power  of  their  current  receipts. 

A  third  large  body  of  data  and,  therefore,  a  third  section  of  this  estimate 
concerns  the  incomes  of  farmers.  Relatively  few  farmers  make  income-tax 
returns,  so  that  we  can  learn  little  about  their  affairs  from  the  Internal 
Revenue  Bureau's  publications.  Chief  reliance  must  be  placed  upon  the 
annual  estimates  of  the  "gross  value  of  wealth  produced  on  farms"  made 
by  the  Department  of  Agriculture.  But  these  estimates  confessedly 
include  a  vast  amount  of  duplication  which  must  be  corrected  as  well  as 
may  be  by  resort  to  various  special  studies  of  farm  economics.  Farmers 
are  less  accustomed  to  keep  books  than  perhaps  any  other  large  class  of 
business  men;  and  to  keep  their  books  correctly  is  peculiarly  difficult 
because  the  value  of  the  food  and  fuel  they  produce  for  their  own  consump- 
tion must  be  estimated,  as  well  as  the  rental  value  of  their  owned  homes. 
What  is  difficult  for  the  individual  farmer  to  do  accurately  is  impossible 
for  the  outside  investigator  to  do  accurately  for  six  and  a  half  millions 
of  farmers.  Hence  the  estimate  of  farmers'  incomes  and  especially 
the  number  of  farmers  having  incomes  above  the  $  2,000  line  and  con- 
sequently also  of  those  below  this  line  is  subject  to  a  considerable;  margin 
of  error. 

The  last  section  of  the  estimate  is  concerned  with  a  type  of  income  about 
which  there  is  much  discussion — corporate  surpluses.  There  are  those  who 
deny  that  these  surpluses  are  to  be  regarded  as  in  any  true  sense  part  of 
the  National  Income.  For  this  reason,  we  keep  this  item  separate  and 
give  totals  both  for  all  individual  incomes  and  for  individual  incomes  plus 
corporate  surpluses.  Our  investigation  of  corporate  finance  inclines  us  to 
believe  that  some  80-90  per  cent  of  corporate  surpluses  are  genuine  income, 
invested  in  the  extension  of  plant  and  equipment  in  the  same  way  as  is 
fresh  capital  raised  by  stock  or  bond  issues. 

Since  the  amount  of  income  reported  to  the  Bureau  of  Internal  Revenue 
as  due  to  sales  of  property  is  a  negligible  item,  we  conclude  that  these 
surpluses  have  not  been  shown  in  individual  incomes  during  the  prosper- 
ous years  covered  by  this  report.  In  years  of  depression,  the  surplus 
accounts  of  corporations  suffer  a  great  decline,  and  may  turn  into  de- 
ficits. If  we  did  not  include  this  item  in  our  estimates,  we  should  make 
the  National  Income  more  stable  than  it  actually  is. 

After  the  manuscript  of  Volume  1  was  sent  to  press,  certain  additional 
data  have  become  available  which  have  enabled  us  to  make  minor  revis- 


252  THE  ESTIMATE  BY  INCOMES  RECEIVED 

ions  in  the  Estimate  by  Incomes  Received.  It  is  our  hope  to  make  further 
revisions  of  this  sort  in  our  published  reports  whenever  materials  and  op- 
portunity permit.  Even  the  present  revised  results  for  1910-1919  are  not 
final,  but  merely  the  best  approximations  which  we  can  make  from  the 
data  now  at  hand. 


S 


CHAPTER  22 

TOTAL  AMOUNT  OF  INCOME  RECEIVED  BY  PERSONS  HAVING 

OVER  $2,000  PER  YEAR 

§  22a.  Introduction 

The  estimate  of  the  total  income  of  persons  receiving  over  $2,000  per 
year  is  based  on  income-tax  returns,  on  data  regarding  tax-exempt  income, 
and  on  incomes  of  farmers  having  over  82,000  per  year.  These  three  pa  rl  s 
of  the  estimate  are  discussed  in  detail  in  the  following  sections.  Table 
22A  presents  the  final  results. 

TABLE  22A 


ESTIMATED  TOTAL  NUMBER  OF  PERSON'S  AND  TOTAL  AMOUNT  OF 
INCOME  FROM  ALL  SOURCES  RECEIVED  BY  ALL  PERSONS  HAVING 
INCOMES  OVER  $2,000 

1910  to  1920 


Income  in  millions  of  dot 

ais 

Number  of  persons 

Year 

I 
Income 

tax 
data  a 
(exclud- 
ing 
farmers) 

II 

Tax- 
exempt 

income  '< 

III 

Farmers' 
incomes  r 

over 
$2,000 

IV 

Total 

V 

Number 

of  persons 
(excluding 
farmei 

V] 

Number 

of  farm 

VII 

Total 

number  of 

pers  ms 

1910..  . 
1911.. . 
1912..  . 

S  8,800  d 
8,600  <* 

8,800^ 

8    792 
806 
818 

§    258 
1 82 
262 

$  9,850 
9,588 
9,880 

1,300,000 
L,300,000 
1,300,000 

111,000 

70. 000 

111,000 

1,411,000 
1,370,000 
1,111.000 

1913. . . 
1914..  . 
1915..  . 

9,000 
8,700 

10,000 

830 
843 
858 

340 
340 
516 

10,17(1 

9,883 

11,374 

1,300,01 )() 
L,300,000 
1,800,000 

I  13,000 

1  11,000 

208,000 

1,443,000 
1,111.000 
2,008,000 

1916..  . 
1917..  . 
101S..  . 

13,500 

1(1,000 
16,200 

973 
1,008 

1,279 

1,179 
3,886 

5,784 

15,652 
20,894 
23,263 

2.300,000 
2,900,000 

3,100,000 

HS. 01 10 

1,313,000 
1,861,000 

2,748,000 
1,213,000 
1,961,1 

1919..  . 
1920. .  . 

17,500 

1,550 
1,573 

6,298 
2,261 

25,348 

3,600,000 

2,008,000 
so  1,000 

5,608 ,00  1 

a  See  §  22b.  c  gee  Table  24K. 

b  See  §  22c.  ''Estimated. 

§  22b.  Estimate  from  Income  Tax  Data 

Two  questions  must  be  answered  before  the  income-tax  data  as  reported 
by  the  Bureau  of  Internal  Revenue  can  be  utilized.     How  much  are  re- 

253 


254  THE  ESTIMATE  BY  INCOMES  RECEIVED 

ported  incomes  understated  and  what  is  the  amount  of  incomes  that  should 
be,  but  are  not  reported?  For  brevity  we  shall  call  these  two  defects  of 
the  data  "understatement"  and  "failure  to  report."  Failure  to  report  is 
frequent  in  the  lower  income  ranges  where  the  exemptions  allowed  by  law 
would  nearly  or  entirely  cover  income  received;  understatement  is  preva- 
lent in  the  higher  income  ranges  where  most  elaborate  methods  are  often 
resorted  to  in  order  to  avoid  payment  of  the  tax. 

Changes  in  the  law  itself  and  in  the  methods  of  collecting  the  tax  make 
comparison  between  different  years  difficult.  In  the  years  1913  to  1916, 
incomes  above  $3,000  are  reported  and  thereafter  above  $2,000. *  Fur- 
ther, the  deduction  of  losses  incurred  in  transactions  outside  of  the  particu- 
lar business  in  which  the  tax  payer  was  engaged  was  not  permitted  in  the 
early  years,  but  in  1917  this  ruling  was  changed  so  as  to  permit  the  writing 
off  of  all  losses. 

It  should  be  noted  that  profits  made  from  sales  of  investments  or  prop- 
erty are  included  as  income  under  the  income-tax  law.  In  Volume  I  it  is 
held  that  such  profits  are  a  part  of  individual,  but  not  of  National  Income.2 
It  may  be  thought  that  gains  of  this  sort  were  enormously  increased  after 
1916  by  the  rise  of  prices.  If  all  property  had  actually  been  sold  at  current 
quotations  the  tax  returns  would  include  a  vast  volume  of  clearly  fictitious 
income.  The  fact  is,  however,  that  the  increased  income  taxes  were  an 
effective  deterrent  from  making  realizing  sales,  so  that  only  a  negligible 
portion  of  this  fictitious  income  was  included  in  the  tax  returns.  And  this 
portion  is  probably  more  than  offset  by  the  volume  of  "loss-taking"  sales 
of  property  which  had  declined  in  price — sales  made  purposely  to  reduce 
the  amount  of  taxable  income. 

Another  factor  which  must  be  considered  in  estimating  both  the  amount 
of  understatement  and  failure  to  report  is  the  administration  of  the  income- 
tax  law.  This  has  naturally  improved  with  experience  so  that  the  returns 
are  far  more  accurate  for  the  later  than  for  the  earlier  years.  In  particular, 
an  attempt  has  been  made  since  1918  to  reduce  the  amount  of  evasion  by 
"intensive  drives"  in  the  $2,000  to  $5,000  range. 

On  the  other  hand,  since  the  armistice  technical  means  to  reduce  the 
income  reported  have  been  resorted  to  on  a  far  larger  scale  than  during  the 
war.  In  particular,  the  practice  of  turning  over  a  portion  of  income- 
bearing  securities  to  members  of  the  family  in  order  to  avoid  or  lessen 
taxation  is  more  frequent.  This  practice  may  result  only  in  dividing  the 
same  amount  of  income  into  smaller  units;  but  it  may  also  lessen  total 
income  because  gifts  are  counted  at  their  market  value  at  the  date  of  the 
gift  and  therefore  do  not  include  appreciation  of  value  since  their  original 

i  No  use  is  made  of  the  data  for  incomes  between  $1,000  and  $2,000,  as  they  apply  only 
to  single  persons,  and  arc  therefore  only  a  part  of  all  the  incomes  in  these  ranges. 
-'  Sec  Volume  I,  page  45. 


TOTAL  INCOME  PERSONS  HAVING  OVER  $2,000  PER  YEAR    255 

purchase  by  the  donor.  This  device  makes  it  possible  to  sell  securities 
without  reporting  appreciated  value.  This  fact  is  not  of  much  conse- 
quence, however,  for  the  appreciation  in  the  value  of  securities  may  in 
part  represent  the  accumulation  of  corporate  surplus  which  we  include 
under  a  separate  head,  and  in  part  an  increase  in  the  price  of  unchanged 
property,  which  we  do  not  wish  to  include.  In  addition,  the  practice  of 
forming  investment  corporations  for  the  purpose  of  avoiding  or  lessening 
taxation  has  increased.  By  this  means,  surpluses  above  the  current 
needs  of  the  stockholders  are  retained  by  the  corporation  and  hence  are 
not  reported  as  personal  income.  There  is  no  way  of  ascertaining  with 
exactness  the  extent  of  this  practice.1 

With  these  general  considerations  in  mind,  the  data  may  now  be  pre- 
sented. Careful  study,  year  by  year,  of  the  figures  appearing  in  the  follow- 
ing tables  and  in  the  charts  in  Volume  I  should  enable  us  to  make  an  esti- 
mate allowing  for  evasion  and  understatement  due  to  the  differences  in  the 
methods  of  collecting  the  tax  in  different  years,  and  to  changes  in  the  law 
itself.  Concerning  the  failure  to  make  returns  and  the  inaccuracy  of 
many  of  the  returns  made,  we  have  little  information  bej'ond  a  surmise 
that  the  omissions  are  considerable.  It  is  hoped  that  there  will  shortly  be 
available  the  results  of  audits  which  will  furnish  a  better  basis  for  an 
estimate. 

The  following  table  shows  the  total  number  of  persons  and  amount  of 
income  reported  by  the  Bureau  of  Internal  Revenue.  Figures  are  also 
given  for  the  probable  amount  of  income  and  number  of  persons  having 
incomes  over  $2,000  in  1913  to  1916.  This  estimate1  was  made  after  com- 
parison between  the  average  number  of  persons  and  amount  of  income  in 
the  S2,000  to  $3,000  class  in  1917,  1918,  and  1919  with  those  having 
S3, 000  and  over.  It  was  found  that  about  30  per  cent  of  the  total  income, 
and  about  50  per  cent  of  income-tax  payers  fell  within  this  class.  Thes 
percentages  were  accordingly  usad  in  estimating  the  amount  of  income 
and  number  of  persons  having  over  82,000  in  the  earlier  years,  1913  to 
1916,  as  shown  in  columns  II  and  IV  of  Table  22B.  Doubtless,  some 
degree  of  error  is  involved  in  this  estimate  because  of  the  rise  in  prices 
and  the  steeper  slope  of  the  curve  in  the  later  years  than  in  the  earlier; 
but  after  considerable  study  no  better  method  has  been  found. 

In  order  to  study  the  probable  amount  of  failure  to  report  and  under- 

1  Probably,  90  per  cent  of  tho  corporations  in  tin-  United  States  represent  merely  individuals 
or  a  small  group  <>f  individuals  doing  business  through  the  medium  of  a  corporation.  In 
these  cases,  there  is  a  strong  tendency  to  withhold  dividends.  Additions  to  corporate  sur- 
plus in  such  companies  are  certainly  as  much  income  as  corresponding  items  of  partnerships 
or  sole  traders. 

It  is  to  be  noted  that  the  war  additions  to  corporate  surplus  (after  taxes)  have  been  wiped 
out  in  large  measure  by  (1)  the  1920  to  l'.i-'l  depression  and  (2)  by  investments  in  planl 
facilities  that  are  unrealizable  through  either  operation  or  sale. — J.  E.  Sterrett. 


256 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


TABLE  22B 


THE  OFFICIAL  INCOME  TAX  RETURNS  ON  THE  BASIS  OF  A  UNIFORM 

EXEMPTION  LIMIT  OF  $2,000 

(No  correction  for  failure  to  report,  understatement,  or  tax-exempt  income) 

1913  to  1920 


a  Annual  Report  of  the  Secretary  of  the  Treasury,  June  30,  1914,  p.  628.  Bureau  of 
Internal  Revenue,  Statis„ics  of  Income,  1916,  pp.  14,  23;  1917,  pp.  28,  29;  1918,  pp.  36, 
37;  Preliminary  report  for  1919,  p.  8. 

b  On  the  basis  of  1917,  1918,  and  1919,  see  text. 

'  For  incomes  over  83,000. 

d  Actual  number  or  amount  reported  for  incomes  over  $2,000. 

<  Preliminary  figure  including  incomes  over  $1,000. 


statement  of  income  for  each  year,  the  income-tax  data  were  plotted  on  a 
logarithmic  scale.  These  charts  are  reproduced  on  pages  120  and  121  of 
Volume  I.  A  chart  on  a  logarithmic  scale  emphasizes  small  arithmetic 
increments  or  decrements  in  the  lower  numbers  and  minimizes  them  in 
the  larger  numbers.  A  slight  change,  therefore,  in  the  shape  of  the  curve 
at  the  left  hand  (lower  income)  end  is  of  great  importance,  since  it  in- 
volves a  large  number  of  incomes.  The  advantage  of  charting  the  data 
in  this  form  for  analysis  is  illustrated  in  Part  III  of  this  volume. 

It  should  be  noted  that  the  curves  for  each  year  show  a  general  similar- 
ity in  the  direction  and  angle  of  slope.  Reading  toward  the  left  from  the 
right  hand  side  of  the  chart,  the  curves  for  1913  to  1916  fall  off  at  the 
$5,000  point,  whereas  the  curve  for  1917  is  almost  a  straight  line.  In  1918 
and  1919  the  curves  turn  sharply  upward  at  this  point.  These  observa- 
tions indicate  (1)  that  the  comparative  number  of  incomes  reported  in  the 
$2,000  to  $5,000  ranges  in  the  earlier  years  was  less  than  in  the  later  years; * 

1  In  order  to  discover  tax  delinquents  in  1918,  all  employers  were  required  to  report  the 


<* 


TOTAL  INCOME  PERSONS  HAVING  OVER  $2,000  PER  YEAR    257 

and  suggest  (2)  that  the   reporting  of  incomes   in   the   $5,000   to,  say, 
$50,000  ranges  was  less  complete  than  in  the  higher  ranges. 

To  show  more  fully  tin1  situation  in  the  lower  income  ranges  in  the  years 
1917  to  1919,  the  following  table  has  been  made. 

TABLE  22C 


COMPARISON  OF  REPORTED  XET  INCOME,  INCOME  FROM  SALARIES, 
AND  INCOME  FROM  BUSINESS  OF  PERSONS  RECEIVING  $2,000  TO 
$5,000  PER  YEAR 


1917  to  1919 


Year 

Number  of 

Persons 

Net  income 

Income  from 
salaries 

(Thousands 
of  dollars) 

Income  from 

business 

1917a 

1918  b 

1919  c 

1,399,470 
2,429,214 
2,750,229 

$4,180,842 
7,162,044 
8,320,550 

$1,853,648 
4,389,992 
5,445,578 

$1,802,641 
1,733,831 
1,860,148 

a  Statistics  of  Income,  1917,  pp.  40,  41. 

6  Statistics  of  Income,  1918,  p.  44. 

c  Statistics  of  Income,  1919,  Preliminary  Report,  pp.  8,  11. 

Income  returns  of  less  than  $5,000  were  checked  in  the  field  from  1918 
on,1  while  those  of  over  $5,000  were  sent  to  Washington  and  checked  by 
the  central  force.  This  system  resulted  in  the  greatest  care  being  given  to 
the  smaller  incomes  and  to  the  large  ones  of  say  $50,000  or  more.  The 
Washington  force  has  in  the  past  been  inadequate  to  audit  all  the  returns, 
and  in  addition  has  been  so  far  in  arrears  that  its  findings  have  been  made 
too  late  to  affect  the  statistical  data,  which  are  of  necessity  computed  from 
the  returns  as  they  are  originally  reported.  The  dip  in  the  curve  between 
$5,000  and  $50,000  in  these  years  may  thus  reflect  understatement  of 
incomes  and  be  due  largely  to  the  technique  of  the  Bureau  of  Internal 
Revenue.  The  figures  for  incomes  above  $50,000  are  believed  by  com- 
petent authorities  to  be  technically  almost  accurate,  containing  only  such 
understatements  as  can  be  made  within  the  letter  of  the  law.  The 
amount  of  such  understatement  is  included  in  the  estimate  in  §  22c  on 
Tax-exempt  Income. 

Further  light  is  apparently  thrown  on  the  general  problem  of  under- 
statement by  a  comparison  of  the  average  amounts  of  income  reported  in 
each  year. 

amounts  over  $1,000  paid  to  any  individual  in  wages.  The  result  of  this  drive  was  that  the 
amount  of  income  reported  between  $2,000  and  $5,000  as  received  from  wages  or  salaries  was 
greatly  increased.  No  such  simple  method  has  been  devised  for  detecting  delinquents  among 
men  doing  business  in  a  small  way  on  their  own  account,  however,  and  in  L918  the  number 
of  such  persons  riling  income-tax  returns  actually  declined.  We  cannot,  therefore,  believe 
that  failure  to  report  has  yet  been  reduced  within  narrow  limits. 
1  Returns  for  the  year  1917. 


258 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


TABLE  22D 


AVERAGE  INCOME  OF  PERSONS  RECEIVING  OVER  $3,000 

1913  to  1919 


Year 

Number  of 

persons 
(Thousands) 

357  a 
357  b 
336  b 

437  b 
993  c 

1,411  d 

1,838  e 

Total  income 

(Millions  of 

dollars) 

$  3,900  b 
4,000  b 
4,600  b 

6,298  b 

9,126  c 

10,065  d 

13,223  * 

Average  income 

1913. 

$10,906 
11,188 
13,664 

14,415 
9,187 

1914 

1915 

1916 

1917 

1918 

7,132 

1919 

7,194 

a  Annual  Report  of  the  Secretary  of  the  Treasury,  June  30,  1914,  p.  628. 

b  Statistics  of  Income,  1916,  p.  14. 

c  Statistics  of  Income,  1917,  p.  28. 

d  Statistics  of  Income,  1918,  p.  36. 

e  Statistics  of  Income,  1919,  Preliminary  Report,  p.  8. 

According  to  this  table  the  average  income  over  $3,000  increased  rapidly 
from  1913  to  1916,  dropped  violently  in  1917,  and  declined  still  further  in 
1918.  These  changes  are  the  net  resultant  of  several  factors.  (1)  Incomes 
already  large  doubtless  grew  rapidly  larger  with  the  recovery  from  the 
depression  of  1913-14,  and  the  sudden  uprush  of  prices  after  the  middle 
of  1915.  (2)  On  the  other  hand,  these  large  incomes  were  probably  re- 
duced in  1917-19  by  the  encroachments  made  upon  profits  by  increasing- 
costs  of  doing  business.  (3)  The  war-time  rise  of  wages,  salaries,  profes- 
sional fees  and  of  the  gains  of  small  business  men  carried  many  incomes 
for  the  first  time  in  the  lives  of  their  recipients  above  the  $3,000  line,  and 
of  course  this  rapid  increase  in  the  number  of  incomes  in  the  $3,000-$5,000 
intervals  tended  powerfully  to  reduce  the  average  of  all  incomes  above 
$3,000.  (4)  After  the  effect  of  these  three  factors  has  been  allowed  for 
the  figures  still  suggest  that  a  considerable  role  was  played  by  fuller  re- 
porting of  small  incomes.  The  reduction  of  the  exemption  limit  from 
$3,000  to  $2,000  in  1917,  the  patriotic  spirit  that  made  people  more  willing 
to  pay  taxes  during  the  war  and  the  "intensive  drive"  of  1918  all  contrib- 
uted to  this  result. 

In  so  complex  a  situation  it  is  impossible  to  attribute  its  due  effect  to 
each  of  the  intermingled  factors.  Yet  a  rough  series  of  corrections  can 
be  made  to  give  approximations  much  closer  to  the  whole  truth  than  the 
official  figures  give.  The  method  adopted  is  first  to  correct  the  official 
returns  for  1918,  and  then  to  use  these  new  estimates  as  a  basis  for  cor- 
recting the  figures  for  earlier  years. 


<* 


TOTAL  INCOME  PERSONS  HAVING  OVER  $2,000  PER  YEAR    259 

The  probable  amount  of  understatement  and  failure  to  report  income 
in  1918  was  estimated  as  follows: 

1.  The  failure  to  report  incomes  from  business  in  the  $2,000  to  $5,000 
range  was  considerable.  The  doubling  of  incomes  from  salaries  owing  to 
the  "drive"  in  19 IS  indicates  that  an  equally  successful  effort  to  find 
small  business  incomes  would  have  had  large  results.  For  our  purposes, 
the  best  guess  is  to  double  the  amount  reported  under  this  head — a  cor- 
rection which  adds  $1,298  million  to  the  total. 

2.  The  understatement  of  income  from  salaries  in  1918  was  probably 
very  much  less.  This  item  had  been  increased  very  largely  over  1917, 
and  the  manner  in  which  the  work  was  conducted  indicates  that  nearly 
all  salaries  were  found.  However,  since  this  item  showed  a  still  further 
increase  of  over  a  billion  dollars  in  1919,  it  is  probable  that  there  was  still 
some  understatement  in  1918.  This  amounted  to  perhaps  one-tenth  of 
the  reported  total,  or  $370  billion. 

3.  The  understatement  of  the  incomes  between  $5,000  and  $50,000  is 
very  difficult  to  estimate.  In  these  ranges,  there  were  reported  in  1917, 
415,000  incomes,  totalling  84,560  million;  in  1918,  465,000  incomes,  total- 
ling $4,860  million;  and  in  1919,  640,000  incomes,  totalling  $6,645  million. 
It  is  known  that  this  class  escaped  attention  in  1918  to  a  greater  degree 
than  either  the  larger  or  smaller  incomes,  and  this  point  is  graphically 
illustrated  by  the  "dip"  shown  in  the  preceding  charts.  It  is  noteworthy 
that  in  1919  the  "dip"  was  to  some  extent  reduced.  An  elimination  of 
the  "dip"  and  a  reading  of  the  points  on  the  redrawn  curve  for  1918 
indicates  a  possible  increase  of  from  $1  to  $3  billion;  the  points  are  so  fine 
at  this  stage  of  a  logarithmetic  chart  that  the  slightest  variation  causes  an 
enormous  difference  in  the  readings.  A  flat  increase  of  $2  billion  for  the 
understatement  in  these  ranges  in  1918,  then,  appears  to  be  as  close  a 
correction  as  can  be  made. 

A  summary  of  these  corrections  in  tabular  form  follows: — 

TABLE  22E 
ESTIMATED  AMOUNT  OF  INCOME  SUBJECT  TO  TAXATION'  IX  1918 

(Excluding  farmers) 
(Millions  of  dollars) 

Income  reported  ovor  $2,000 S13,ti'.»J  ' 

Less  Farmers'  Income 1,123  6 

$12,569 

Add  Estimated  Business  delinquencies  ($2,000  $5,000) 1,298  e 

Estimated  Salary  delinquencies  ($2,000-$5,000) 370 

Estimated  General  delinquencies  ($5,000-$50,0()0) 2,000  c 

Total  Estimated  Income $16,237 

a  Statistics  of  Income,  191S,  pp.  36,  37.  b  Statistics  of  Income,  1918,  p.  11. 

c  See  text. 


200 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


When  the  curve  for  1918  is  redrawn  on  the  basis  of  $10.2  billion  instead 
of  $13.7  billion  total  income,  it  shows  only  a  small  "dip"  in  place  of  the 
very  pronounced  one  shown  in  Chart  22B.  If  a  similar  computation  is 
made  for  earlier  years,  based  on  the  results  for  1918,  and  if  the  general 
information  contained  in  the  preceding  charts  and  tables  is  utilized,  then 
the  approximation  to  the  income  over  $2,000  for  each  of  these  years  is  as 
follows: — 

TABLE  22F 

ESTIMATED  TOTAL  NUMBER  OF   PERSONS  AND  AMOUNT  OF  TAXABLE 
INCOME  OF  PERSONS  RECEIVING  INCOMES  OVER  $2,000  PER  YEAR 

(Excluding  farmers) 
1913  to  1920 


Number  of 
persons 

(Millions) 

Total  income 
(Billions) 

Minimum  and 

maximum  estimates 

(Billions) 

1913 

1914 

1915 

1916 

1.3 

1.3 
1.8 
2.3 

2.9 
3.1 
3.6 

$  9.0 

S.7 

10 . 0 

13.5 

16.0 

16.2 
17.5 

$  7-10 

7-10 

8-12 

12-15 

1917 

1918 

L919 

15-19 
15-19 
17-20 

1920 

Needless  to  say,  any  method  of  estimating  money  income  that  ought  to 
be,  but  is  not,  reported  to  the  taxing  authorities  yields  merely  rough  ap- 
proximations. It  cannot  be  pointed  out  too  often  that  the  exactness  of  the 
figures  used  is  purely  technical.  However,  they  are  the  result  of  an  ex- 
haustive scrutiny  and  analysis  of  the  existing  data,  and  a  careful  study  of 
the  best  means  of  interpreting  them.  No  final  solution  of  the  income  dis- 
tribution problem  can  be  reached  until  we  have  an  accurate  census  of  the 
incomes  of  all  the  people  in  the  country,  or  at  least  of  a  large  and  well 
selected  sample. 

§  22c.  Tax-exempt  Income 

In  addition  to  the  kind  of  incomes  which  are  or  should  be  reported  by 
persons  under  the  income-tax  law,  there  are  some  forms  of  income  which 
are  not  reported  because  they  are  exempt  from  taxation.  Certain  items  of 
this  tax-exempt  income  can  be  said  with  some  assurance  to  accrue  almost 
entirely  to  those  having  incomes  over  $2,000,  for  example,  income  from 
si  ate  or  local  bonds  and  Federal  Farm  Loan  Bonds.  Other  types  of  income, 
such  as  the  interest  on  Liberty  Bonds,  state  and  local  salaries,  and  income 


, 


TOTAL  INCOME  PERSONS  HAVING  OVEE  12,000  PER  YEAR     261 

from  homes  owned  by  their  occupants,  are  known  to  be  divided  between 
those  having  incomes  over  and  tinder  $2,000.  Where  no  statistical  infor- 
mation was  obtainable,  we  have  apportioned  such  incomes  in  the  manner 
which  seemed,  all  things  considered,  most  probable. 

The  following  table  is  presented  to  show  the  amount  of  income  which 
accrues  to  the  persons  falling  under  the  income-tax  law  and  for  which  they 
are  not  required  to  make  any  return. 

TABLE  22G 

ESTIMATED  TAX-EXEMPT  INCOME  a 

1910  to  1920 

(Tax-exempt  Agricultural  Income  Omitted) 

(Millions  of  dollars) 


Year 

I 

Interest 

on  local 

debt 

II 

[uteres! 
on 

Libei  t  y 
Bonds 

111 
Interest 

on 

Federal 

Farm 

Loan 

Bonds 

IV 
Interest 
on  obli- 
gations 
of  p  IS- 
sessions 
of  U.S.  t> 

V 
Income 

exempt 

through 
nature 
of  oc- 
cupation c 

VI 

Rental 

value  of 

homes 

owned 

VII 

Total 

1910 

1911 

1912 

1913 

1914 

1915 

1910 

1917 

1918 

1919 

L920 

$134 
148 
160 
172 
L85 
200 

215 

228 
236 
259 

282 

$ 

20 
ISO 
380 
380  d 

$ 

1 
1 
7 

Id 

$3 
3 
3 
3 
3 
3 

3 

4 
4 
1 
1 

$155 
155 
155 
L55 
155 

1  .V) 

I.-.:, 
1 55 
1 55 

2  10 
203 

$500 

.-,1  1!  1 

500 

51 II  i 
500 
500 

6  ii 

6  10 

Tin 

7i  I 

7  il 

S    792 
8  16 
818 
83U 
8  13 
858 

973 
1,008 
1,279 
1,550 
1,573 

a  See  the  following  tables  for  references. 
'•  And  also  U.  S.  bonds  issued  prior  to  1917. 
c  State,  city  and  county  salaries. 
d  Estimated. 


The  items  of  this  table  tire  taken  up  in  the  following  divisions. 

1.  Local  Debts. 

The  next  table  gives  the  amount  of  state,  municipal  and  local  debts  in 
1913. 

The  security  issues  subsequent  to  1913  are  recorded  by  the  Bond  Buyer 
which  has  the  most  complete  records  available.  An  estimate  of  the  amount 
of  refunding  may  be  obtained  by  comparing  the  total  issues  reported  by 
the  Bond  Buyer  with  the  actual  increase  as  shown  by  successive  Census 
reports.     In  1902,  the  Census  of  Wealth,  Debt  and  Taxation  reported  a 


262 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


TABLE  22H 

TOTAL  AMOUNT  OF  STATE,  MUNICIPAL,  COUNTY,  AND  LOCAL  BONDS 

OUTSTANDING  a 

1913 

State $    345,942,305 

Municipal 2,884,882,726 

County 371,528,268 

Specified  Civil  Divisions 100,672,758 

School  Districts 118,870,601 

Total  $3,821,896,658 

a  U.  S.  Department  of  Commerce,  Bureau  of  the  Census,  Wealth,  Debt,  and  Taxation, 
1913.    Sinking  funds  excluded. 

total  of  $1,865  million  for  debts  of  states,  municipalities,  and  localities  as 
compared  with  $3,822  million  in  1913.  This  increase  of  $1,967  million 
compares  with  total  issues  of  about  $3,100  million  reported  during  the 
same  period  in  the  Bond  Buyer.  Accordingly,  the  issues  reported  annually 
by  the  Bond  Buyer  have  been  reduced  by  one-third  to  represent  the  approx- 
imate net  increase  in  indebtedness. 

The  following  table  shows  the  new  issues  of  securities  for  each  year,  the 
estimated  increase  of  indebtedness,  and  the  total  estimated  interest  pay- 
ments. 

TABLE  221 


ESTIMATED    TOTAL    DEBT    AND    INTEREST    PAYMENTS    OF    STATES, 
MUNICIPALITIES,  COUNTIES,  AND  LOCALITIES 

1910  to  1920 

(Millions  of  dollars) 


Year 


1910. 

1911 

1912 

1913. 

1914. 


1915. 
1916. 
1917. 
1918. 
1919. 
1920. 


I 

II 

III 

IV 

Amount 

Estimated 

Estimated 

Total 

issued  a 

net  increase 
of  debt 

total  debt 

interest  at 
4.5%  c 

$324 

$216 

$2,983 

$134 

452 

301 

3,284 

148 

399 

266 

3,550 

160 

408 

272 

3,822  b 

172 

446 

297 

4,119 

185 

493 

329 

4,448 

200 

497 

331 

4,779 

215 

445 

297 

5,076 

228 

263 

175 

5,251 

236 

770 

513 

5,764 

259 

745 

497 

6,261 

282 

a  Bond  Buyer,  Jan.  3,  1920,  p.  34,  and  Jan.  8,  1921,  p.  32. 

b  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1913. 

c  The  average  weighted  rate  of  interest  of  samples  of  loans  issued  at  various  dates 
was  4.47  per  cent.  The  increase  in  interest  rates  in  1919  affects  only  a  small  fraction  of 
the  total  debt. 


, 


TOTAL  INCOME  PERSONS  HAVING  OVER  $2,000  PER  YEAR    263 

2.  Liberty  Bonds. 

Liberty  Bond  issues  outstanding  at  different  dates  were  of  ttie  following 
amounts: 

TABLE  22  J 

APPROXIMATE  VALUE  OF  LIBERTY  BONDS  OUTSTANDING 

1917  to  1919 
(Millions  of  dollars) 


a  Report  of  the  Secretary  of  the  Treasury,  L917,  p.  56. 
b  Report  of  the  Secretary  of  the  Treasury,  191S,  p.  157. 
c  Report  of  the  Secretary  of  the  Treasury,  1919,  p.  214. 
d  Report  of  the  Secretary  of  the  Treasury,  1920,  p.  451. 
e  1919  figure  carried  forward. 


Of  these  issues,  the  First  Liberty  Loan  and  part  of  the  Victory  Loan  are 
entirely  tax-exempt.  The  others  are  exempt  only  within  rather  narrow 
limits. 

The  income  from  these  bonds  is  divided  between  banks,  corporations  and 
individuals.  The  following  table  shows  the  estimated  amounts  held  by 
banks  on  the  one  hand  and  by  corporations  and  individuals  on  the  other. 

In  order  to  estimate  roughly  the  income  from  Liberty  Bonds  received 
by  individuals  having  incomes  over  $2,000,  estimates  of  the  interest  re- 
ceived by  corporations,  and  by  individuals  having  incomes  under  82.000 
must  be  made.  An  examination  of  corporation  statements  leads  to  the 
conclusion  that  about  $40  millions  of  such  interest  was  paid  to  corporations 
in  1918  and  $90  millions  in  1919.  Subtracting  these  amounts  from  the 
figures  shown  in  the  last  column  of  Table  22K,  we  get  a  total  received  by 
individuals  of  about  $27  millions  in  1917,  $262  millions  in  1918  and  $683 
millions  in  1919.    Seventy  per  cent  of  these  amounts  1  may  be  considered 

1  The  original  amounts  of  the  bonds  issued  in  the  different  denominations  are  as  follows: — 

$10,000 $3,209,810,000 

5,000 1,493.060,000 

1,000 9,767,222,000 

500 2,095,775,000 

100 3,3s«).s()().0()() 

50 2,81  1,924,850 

{Annual  Report  of  the  Secretary  of  the  Treasury,   1920,  p.  435.)     The  amounts  owned  by 


264 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


TABLE  22K 


ESTIMATED   DIVISION   OF   THE   INCOME   FROM    LIBERTY   BONDS 
BETWEEN  BANKS,  CORPORATIONS  AND  INDIVIDUALS 


1917  to  1919 
(Millions  of  dollars) 


Bonds  outstanding 

Income  from  bonds 

Year 

I 

Total 
amount 
outstand- 
ing 

II 

Amount 
held  by 
banks  a 

III 

Amount 
held  by 
corpora- 
tions and 
individuals 

IV 

Estimated 

total 

income 

V 

Estimated 

income  of 

banks 

VI 

Estimated 
income  of 
corpora- 
tions and 
individuals 

1917 
1918 
1919 

$  1,466 
9,314 

20,726 

$   703 
1,374 
1,450 

$      763 

7,940 

19,276 

«  51 
357 

834 

$24 
55 
61 

$  27 
302 
773 

"  Reports  of  Comptroller  of  the  Currency,  1917,  v.  I,  p.  11;  1918,  v.  I,  p.  16;  1919, 
v.  I,  i).  40. 

a  fair  guess  at  the  proportion  held  by  individuals  with  incomes  over  $2,000; 
which  suggests  as  the  probable  amount  of  tax-exempt  personal  income 
from  this  source,  about  $20  millions  in  1917,  $180  millions  in  1918,  and 
$480  millions  in  1919.  The  later  issues  were  more  narrowly  tax-exempt, 
so  that  a  considerable  portion  of  the  interest  received  in  1919  had  to  be 
reported  in  the  income-tax  returns.  The  actual  exemption  in  that  year 
was  then  loss  than  $480  millions  by  perhaps  $100  millions,  or  say  $380 
millions.  No  change  of  any  moment  from  this  amount  is  warranted  for 
1920,  and  the  same  figure  is  used  for  that  year. 

3.  Federal  Farm  Loans. 

The  following  table  gives  the  amount  of  Federal  Farm  Loan  Bonds  out- 
standing in  recent  years.  The  Farm  Loan  Board  estimates  that  practically 
the  entire  issue  is  in  the  hands  of  the  public  and  not  in  the  hands  of  com- 
mercial banks. 

hanks  and  corporations  must  have  been  in  the  neighborhood  of  four  billion  dollars — probably 
for  the  most  part  in  large  denominations.  Few  people  having  incomes  of  less  than  $2,000 
could  lie  expected  to  own  bonds  of  s.500;  and  some  of  the  persons  having  incomes  of  over 
s'_>,()(>()  would  own  bonds  of  $50  or  $100.  The  division  of  the  bonds  between  persons  having 
more  th:m  $2,00(1  and  less  than  sj, (loo  would  be  approximately  as  follows: 

To  persons  having  over  $2,000;  $16,566  million,  being  the  sum  of  the  denominations  of 
$500  to  $10,000,  plus  one-tenth  of  the  $50  and  $100  ($620  million),  a  total  of  $17.3  billion; 
le  $  1  billion,  the  amount  held  bv  banks  and  corporations,  giving  a  final  amount  of  $13.3 
billion.  To  persons  having  less  than  $2,000;  nine-tenths  of  the  $50  and  $100  bonds,  or  $5,584 
million.  This  would  give  70  per  cent  of  the  bond  interest  credited  to  individuals  to  persons 
having  over  $2,000. 


S 


TOTAL  INCOME  PERSONS  HAVING  OVER  82,000  PER  YEAR     265 

TABLE  22L 

FEDERAL  FARM  LOAN  BONDS  OUTSTANDING 
1917  to  1919  (Thousands  of  dollars) 


1917 

1918 

1919 

Bonds  outstanding** 

Bonds  held  by  the  Treasury  b 

$2 1 . 147 
0 

$21,447 
992 

$140,122 
56,865 

$285,500 
L36,885 

Bonds  held  l>v  the  Public.  . 

$83,257 
3,851 

$148,615 
6,873 

Income  from  Bonds  held  by  the  Public  c. 

"On  October  31. 

&  Unpublished  figures  furnished  by  the  Assistant  Secretary  of  the  Federal  Farm 
Loan  Bureau. 

c These  loans  pay  from  4  l/2Per  cent  to  5  per  cent  and  the  interest  rate  is  computed 
on  the  basis  of  45/s  per  cenl . 

4.  U.  S.  Bond  Issues  prior  to  1917  and  Bonds  of  V.  S.  Possessions. 
U.  S.  Bonds  issued  prior  to  the  year  1017  consisted  on  June  30,  1919  of 
the  following: 

TABLE  22  M 

U.  S.  BONDS  ISSUED  PRIOR  TO  1917  a 


Consols  of  1930 

Loans  of  1925 

Panama  ( Janal  Loan 
Panama  Canal  Loan 
Conversion  Bonds.  .  . 
Postal  Savings  Bonds. 


Rate  of 
interest 


4 
2 
3 

3 

2V2 


Amount 


$599,724,050 
118,849, 
74,901,. ".so 
50,000,000 
28,894,900 
11,349,960 


Principal 
holder 


Banks 
Banks 
Banks 
Public 
Banks 
Public 


°  Report  of  the  Secretary  of  the  Treasury,  1919,  p.  113. 

With  slight  changes,  reported  annually  by  the  Secretary  of  the  Treasury, 
the  interest  on  these  amounts  is  about  822  million.  A  large  number  of 
these  bonds  are  held  by  banks;  the  best  estimates  obtainable  show  that 
only  the  Panama  3  per  end  Bonds  and  the  Postal  Savings  Bonds  are  to 
any  extent  in  the  hands  of  the  public.1  The  annual  income  from  the  bond 
issues  which  are  held  largely  by  the  public  accordingly  amounts  to  $1,784,- 
000.  To  these  issues  must  be  added  the  interest  on  bonds  of  the  posses- 
sions of  the  United  Slates  (Hawaii.  Philippines  and  Porto  Rico).  The 
amounts  involved  are  small.  In  1910  the  total  debt  was  $22  million  and 
mounted  gradually  to  $41  million  in  1020.  The  interest  at  the  earlier 
date,    therefore,    was    approximately    8880,000    and    at    the    later   dale, 

1  Estimate  made  by  Commission  of  Public  Debt,  August  25,  1920. 


286 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


$1,040,000.     These  two  amounts  add  up  to  about  $3  million  per  year  for 
the  earlier  years  and  $4  million  per  year  for  the  later  years. 

5.  State,  City  and  County  Salaries. 

The  expenditures  for  salaries  by  states,  cities  and  counties  are  not  sub- 
ject to  the  Federal  income  tax,  and  such  salaries  as  are  above  $2,000 
should,  therefore,  be  added  to  the  income  which  is  known  to  accrue  to  cer- 
tain individuals.  The  data  arc  mainly  taken  from  the  Census  publica- 
tions, Financial  Statistics  of  States,  1918,  Financial  Statistics  of  Cities,  1918, 
and  County  Revenues,  Expenditures  and  Public  Properties,  1913.  From  the 
data  given  in  these  reports,  other  expenses,  such  as  payments  for  upkeep, 
interest,  and  general  expenses,  have  been  excluded  in  Column  II  of  Table 
22N,  and  the  final  estimate  has  been  a  rough  paring-down  of  the  remainder. 
A  number  of  items  included  both  salaries  and  upkeep,  so  that  an  itemized 
division  is  not  practicable  and  no  more  elaborate  method  is  warranted 
under  the  circumstances.  A  check  on  the  salaries  paid  by  states  was,  how- 
ever, possible.  The  reports  of  six  States  were  scrutinized  with  great  care, 
and  an  estimate  for  the  entire  country  was  made  on  the  basis  of  each  state. 
This  estimate  varied  from  $159  to  $270  million,  the  average  being  $202 
million.  In  view  of  this,  the  final  estimate  of  $200  million  for  state  sal- 
aries appears  reasonable.  City  and  county  estimates  are  reduced  in  an 
approximately  similar  ratio. 

TABLE  22N 


ESTIMATED  TOTAL  SALARIES  PAID  TO  STATE  OFFICIALS 

1918 


State 

I 

Actual  amount 

of  total 

salaries  paid 

II 

Estimated 

amount  of 

total  salaries 

paid 

III 

Per  cent  of 
population 
.of  U.S.  re- 
siding in  State 

IV 

Estimated 
amount  of 
salaries  paid 
by  all  States 
on  the  basis 
of  one  State 

California  a 

Imliana  b 

Louisiana  c 

New  Yorkd 

Virginia  e 

Wisconsin/ 

$10,092,581 

$7,898,591 
5,744,887 
2,849,546 

3,792,260 
5,728,231 

2.92 

2.76 

1.79 

9.91 

2.135 

2.426 

$270,499,690 
208,148,000 
159,192,510 
159,477,477 
177,623,410 
236,118,340 

Average  of  six  precedinj 

imates 

$201,842,236 

a  California  Biennial  Report  of  the  State  Comptroller,  1917  to  1918. 

b  Indiana  Year  Haul;,  1919. 

c  Louisiana  Biennial  Report  of  Auditor,  1918. 

d  New  York  Report  of  Comptroller,  1917,  Part  3,  p.  11. 

e  Virginia  Ann  mil  Report  of  Treasurer,  August  3,  1918. 

/Wisconsin  Report  of  Treasury,  June  30,  1917. 


S 


TOTAL  INCOME  PERSONS  HAVING  OVER  $2,000  PER  YEAR    267 

In  order  to  determine  the  percentage  of  state  salaries  larger  than  $2,000, 
1,500  samples  were  taken  from  the  U.  S.  Official  Register  for  1911,  1917, 
and  1919  by  choosing  the  top  right  hand  amount  on  each  page.  These 
samples  indicated  that  about  8  per  cent  of  government  employees  receiv- 
ing about  20  per  cent  of  the  total  salaries  fell  in  the  class  having  salaries 
of  over  $2,000,  the  percentage  being  about  the  same  for  each  year.  This 
percentage  is  used  in  Column  III  of  Table  220.  Since  government  sala- 
ries did  not  increase  in  any  marked  degree  until  1919,  when  the  average 
increase  was  about  30  per  cent,  the  same  total  of  $155  million  is  kept  from 
1913  to  1918,  and  $200  million  is  estimated  for  1919  and  1920. 

TABLE  220 


ESTIMATED  TOTAL  SALARIES  PAID  TO  STATE,  CITY    VXD 

COUNTY  OFFICIALS 

(Thousands  of  dollars) 


I 

Total  expenses 

of  general 
departments  a 

II 

Estimated 

total  salaries 

III 

Estimated 

salaries  over 

•82,000  (20  per 

cent  of  Col.  II) 

State  (1918) 

$297,801  b 
666,384  c 
277,735  d 

$200,000 
400,000 

175,000 

$  40,000 

Cities  over  2,500  (1913) 

Counties  (1913) 

80,000 
35,000 

Total 

8775,000 

$155,000 

"Expenses  of  General  Departments  include  administrative  and  other  expenses  for 
(a)  General  Government,  (b)  Protection  to  Persons  and  Property,  (c)  Conservation 
of  Health  and  Sanitation,  (d)  Highways,  (e)  Charities,  Hospitals  and  Corrections,  (f) 
Schools  and  Libraries,  (g)  Recreation,  (In  Miscellaneous. 

b  Bureau  of  the  Census,  Financial  Statist  if*  of  States,  1918,  Table  10. 

c  Census  of  Municipal  Pcrcnue-*,  E.r/tenditures  and  Public  Properties,  1913,  p.  182, 
Table  5. 

d  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1913,  v.  II,  Table  5,  p.  210., 


6.  Rental  Value  of  Homes  Owned  by  their  Occupants. 

To  estimate  the  value  of  the  rentals  of  homes  owned  by  persons  in  the 
income  class  above  S2,0()0,  it  is  necessary  to  fall  back  on  broad  generaliza- 
tions. No  definite  body  of  data  exists.  The  number  of  persons  exclud- 
ing farmers  falling  into  this  group  and  their  total  incomes  are  shown 
in  Table  22A. 

The  Census  of  1910  reports  about-  five  and  one-quarter  million  houses 
owned  by  occupiers,  excluding  farmers.  This  is  about  40  per  cent  of  the 
fourteen  million  families  in  the  country.  Since  home  ownership  has  in- 
creased among  the  wealthy,  especially  in  recent  years,  because  of  the 


268  THE  ESTIMATE  BY  INCOMES  RECEIVED 

income-tax  exemption,  it  is  not  improbable  that  one-half  of  the  income- 
tax  payers  own  their  homes. 

There  does  not  appear  to  be  any  information  in  regard  to  the  relation  of 
income  to  rent  for  the  higher  class  incomes.  The  Bureau  of  Labor  Statis- 
tics finds  13.4  per  cent  to  be  the  proportion  of  rent  to  income  for  working- 
class  families.1  These  data,  which  include  incomes  up  to  82,500,  show  that 
the  percentage  decreases  with  a  rise  in  the  incomes;  for  incomes  above 
$2,500  we  have  no  data  regarding  the  relation  between  rent  and  income. 
Without  a  complete  Census,  or  at  least  a  typical  sample  of  incomes,  rents, 
and  ownership  of  homes  of  the  different  income  classes  of  the  country,  any 
estimate  must  be  mere  conjecture. 

The  proportion  of  13.4  per  cent  above  mentioned,  when  applied  to  one- 
half  the  total  amount  of  income,  estimated  for  the  class  above  $2,000, 
yields  results  ranging  from  one-half  billion  to  three-fourths  billion  dollars. 
In  view  of  the  increase  in  the  number  of  income-tax  payers  between  1913 
and  1919,  together  with  the  increase  in  the  amount  of  income,  it  is  con- 
cluded that  the  total  value  of  rents  increased  from  about  one-half  to  three- 
fourths  billion  dollars.  Because  of  the  need  of  placing  a  definite  amount 
in  Table  22G,  amounts  varying  from  $500  to  $700  million  are  inserted, 
but  their  accuracy  is  only  nominal. 

1  Monthly  Labor  Review,  August,  1919,  p.  118. 


,* 


CHAPTER  23 

TOTAL    AMOUNT    OF    INCOME    RECEIVED    BY    PERSONS 

HAVING    UNDER    $2,000 

§  23a.  Introduction 

By  far  the  larger  number  of  persons  gainfully  employed  have  incomes 
under  $2,000;  and  of  these  incomes,  the  major  portion  conies  from  personal 
earnings  received  in  the  form  of  wages.  Profits  of  small  business  men  and 
earnings  of  professional  men,  when  they  are  less  than  82,000,  are  not  re- 
ported to  the  Bureau  of  Internal  Revenue,  and  it  has  been  necessary  to  as- 
sume that  these  average  amounts  are  substantially  on  the  same  level  with 
wages  under  82,000.  This  assumption  in  regard  to  the  average  may  not 
be  far  from  the  truth,  even  though  the  distribution  of  wages  is  quite  differ- 
ent from  that  of  profits  and  professional  earnings.  The  error  involved  can- 
not in  any  case  be  very  large.  A  study  of  typical  distributions  of  these 
three  types  of  income  would  be  a  valuable1  piece  of  work.  It  is  on  the 
information  concerning  wages,  therefore,  that  the  chief  reliance  must  be 
placed  in  estimating  incomes  under  82,000. 

In  order,  however,  to  arrive  at  the  total  for  this  group,  estimates  must 
be  added  for  the  income  received  from  other  sources.  These  are  income 
from  pensions,  from  homes  owned  by  those  who  occupy  them,  and  from 
investments.  Once  more  the  condition  of  the  data  makes  it  necessary  to 
treat  agriculture  apart  from  other  industries,  so  that  separate  estimates 
have  to  be  made  for  the  incomes  of  farm  laborers  and  of  farmers.  The 
amount  of  each  of  these  items  together  with  the  final  figure  for  all  incomes 
under  $2,000  is  shown  in  Table  23A. 

§  23b.  Personal  Earnings  1 

No  wages  Census  has  ever  been  taken  in  the  United  States.  If  there 
hail  been,  this  estimate  would  have  been  less  difficult  to  make,  and  the 
results  would  doubtless  be  more  trustworthy.  Under  the  circumstances, 
the  best  means  of  arriving  at  the  total  wages  paid  is  to  estimate  the 
average  amount  per  person  from  such  samples  as  are  obtainable  for  each 
occupational  group,  and  multiply  this  average  by  the  number  of  persons 
actually  working  in  this  group.  An  estimate1  could  also  be  made  from  the 
entire  number  of  persons  connected  with  an  industry  provided  the  aver- 
1  Except  those  of  farm  Laborers  ami  farmers^  which  arc  taken  up  in  §§  23c  and  ~S.i£. 

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TOTAL  INCOME  PERSONS  HAVING  UNDER  82,000  271 

age  wages  were  also  estimated  on  that  basis.  But  most  of  the  average 
wages  reported  are  based  on  the  average  number  of  workers  actually 
employed  at  some  one  time.    Hence,  the  first  method  is  the  more  feasible. 

Generally  speaking,  the  average  number  of  persons  employed  in  an 
industry  is  from  3  per  cent  to  10  per  cent  less  than  the  number  of  persons 
attached  to  the  industry.1  About  3  per  cent  are  constantly  out  of  em- 
ployment because  of  sickness  and  other  reasons  and  a  certain  additional 
per  cent  are  irregularly  out  of  work  because  of  seasonal  and  cyclical 
fluctuations. 

The  occupational  groups  are  divided  in  general  accord  with  the  scheme 
used  in  the  Census  of  Occupations  of  1910.  In  Table  23D  are  shown  the 
numbers  of  persons  actually  at  work  in  each  year.  From  these  figures 
have  been  subtracted  the  number  of  persons  receiving  incomes  of  over 
82,000  estimated  on  the  basis  of  the  preceding  chapter.  (Tables  23E  and 
23F)  The  next  step  has  been  to  estimate  the  average  wages  in  each  occu- 
pational group  (Table  23G),  and  by  multiplication  of  average  wages  and 
average  numbers  (Table  23H),  to  obtain  a  figure  for  total  wages  paid. 

In  some  cases,  the  different  samples  from  which  the  average  wages  pre- 
sented in  Table  23G  were  made  up,  showed  considerable  variation.  How- 
ever, in  the  most  important  groups,  particularly  in  Manufacturing  and 
Transportation,  the  results  drawn  from  different  sets  of  data  checked 
against  each  other  with  a  satisfactory  degree  of  accuracy.  After  the  table 
had  been  completed  on  the  basis  of  independent  estimates  for  each  item, 
it  was  again  studied  to  locate  such  inner  discrepancies  as  might  lead  to  the 
detection  of  errors,  either  in  the  relation  of  wages  imputed  to  different 
years  or  to  different  occupations.  Where  discrepancies  were  found,  addi- 
tional information  was  sought.  The  result  is  presented  as  the  nearest 
practical  approximation  of  the  facts  we  could  make  from  the  existing  data. 

It  may  be  well  to  warn  the  reader  against  the  attempt  to  estimate  annual 
average  earnings  from  hourly,  daily  or  weekly  rates  of  pay.  While  it  is 
easy  to  multiply  daily  rates  of  pay  by  the  number  of  working  days  in  a 
year,  this  method  involves  some  assumption  as  to  the  average  number  of 
days  worked.  Examples  have  been  found  of  both  annual  average  earnings 
and  daily  or  weekly  rates  of  wages,  together  with  the  number  of  days  or 
weeks  in  operation,  which  show  that  the  results  found  by  multiplying 
average  rates  by  days  in  operation  give  untrustworthy  results.  Wage 
rates,  therefore,  have  been  used  only  as  indices  and  with  the  greatest 
possible  care.  This  difficulty  is  most  unfortunate  because  the  great 
mass  of  the  material  to  be  had  is  in  the  form  of  hourly,  daily  or  weekly 
rates  of  pay. 

1  Cf.  Chapter  2,  §  d.  Also  Honiell  Hart,  Fluctuations  in  Unemployment  in  Cities  of  the 
United  States,  1002  to  1917. 


272  THE  ESTIMATE  BY  INCOMES  RECEIVED 

Taken  as  a  whole,  the  data  on  which  these  tables  rest  are  numerous  and 
fairly  reliable.  As  said  above,  the  average  number  of  persons  employed  is 
based  on  the  1910  Census  of  Occupations.  As  the  Census  reports  the  total 
number  of  persons  gainfully  employed  in  each  occupational  group,  these 
figures  have  to  be  adjusted  to  the  average  number  actually  employed. 
This  adjustment  has  been  made  in  the  case  of  Manufactures  by  comparing 
the  monthly  average  number  at  work  in  1909,  reported  in  Census  of  Man- 
ufactures, 1909,  with  the  highest  number  employed,  and  assuming  the 
same  ratio  for  1910.  Similar  methods  of  approximating  the  number  actu- 
ally at  work  in  1910  have  been  applied  to  each  occupation.1 

The  average  wages  found  in  each  occupational  group  have  been  ap- 
plied to  the  entire  number  of  persons  actually  at  work  in  that  group.  This 
plan  involves  a  certain  technical  error,  for  some  of  those  in  every  group 
work  independently  and  hence,  receive  what  is  generally  classified  as 
"profits"  and  not  "wages."  No  estimate  that  is  more  than  a  guess  as  to 
the  total  amount  of  these  "profits"  and  as  to  the  number  who  thus  work 
independently  is  available.  It  has  been  found  necessary,  therefore,  to 
assume  that  the  average  profits  of  those  having  an  income  under  $2,000 
is  approximately  the  same  as  the  average  wages  of  employees  engaged  in 
the  same  industry.  An  exception  is  made  in  the  case  of  "trade,"  where 
the  large  number  of  independent  workers  appears  to  indicate  a  rather 
higher  income  than  one  based  strictly  on  wages.2 

Furthermore,  a  major  difficulty  in  classification  should  be  pointed  out. 
There  are  many  cases  in  which  the  same  person  might  fall  within  either 
of  two  groups.  Examples  are  clerks  employed  by  railroads,  engineers 
connected  with  a  factory  or  mine,  lawyers  or  doctors  holding  public  ser- 
vice positions,  horseshoers  or  field  clerks  in  the  army,  etc.  Classifications 
decided  upon  by  the  Census  Bureau  were  of  necessity  more  or  less  arbi- 
trary, but  careful  study  has  led  to  the  conclusion  that  they  are  on  the  whole 
as  satisfactory  as  any  other  set  of  arbitrary  assignments.  The  only  depar- 
tures from  the  Census  classification  which  we  have  made  are  (1)  to  shift  a 
certain  number  of  those  engaged  in  manufacturing  connected  with  mining 
(reported  under  manufacturing  in  the  Occupation  Statistics  of  1910)  to 
mines,  and  (2)  to  change  a  certain  number  of  persons  who  on  account  of 
occupation  were  listed  under  manufacturing,  to  the  army  and  navy,  for 
which  a  separate  group  was  made.  Both  changes  are  of  small  importance, 
but  they  are  desirable  because  actual  figures  from  other  sources  for  later 
years  are  based  on  the  revised  classifications. 

1  The  method  here  adopted  makes  probable  a  certain  amount  of  understatement  of  an- 
nual income,  owing  to  flic  real  and  regular  mobility  of  labor  in  shifting  from  one  industry  to 
another.     This  is  especially  the  case  in  seasonal  industries. — M.  C.  Rorty. 

-  I  question  the  assumption  that  business  and  professional  earnings  under  $2,000  are  com- 
parable to  wages.     Frequency  curves  are  probably  quite  different. — M.  C.  Rorty. 


TOTAL  INCOME  PERSONS  HAVING  UNDER  82,000  273 

There  is  a  considerable  chance  of  error  in  the  numbers  attributed  to  each 
occupational  group.  Each  person  is  placed  by  the  Census  in  that  group 
which  he  considers  his  regular  occupation.  But  there  is  of  necessity  a 
large  amount  of  shifting,  both  from  seasonal  causes  and  from  variations  in 
the  activity  of  different  industries.  Such  shiftings,  however,  will  affect  the 
total  wages  of  all  the  groups  less  than  the  wages  assigned  to  each  group. 
For  the  total  will  only  be  affected  as  the  average  amount  of  w7ages  varies 
from  group  to  group.  This  error  is  probably  not  of  momentous  im- 
portance, for  it  will  tend  to  raise  the  total  as  often  as  to  lower  it. 

The  main  sources  of  information  for  each  of  the  leading  groups  recog- 
nized in  the  estimate  are  as  follows: — 

(1)  Mining.  The  estimated  number  engaged  in  mining  is  based  on 
actual  figures  for  approximately  93  per  cent l  of  all  mines  in  1911  to  1918  as 
reported  by  the  Bureau  of  Mines.  After  careful  comparison  of  the  numbers 
reported  in  metal  mines,  coal  mines  and  quarries  by  the  Census  of  Mines  and 
Quarries,  1909,  by  the  Occupation  Statistics  of  1910,  and  by  the  Bureau  of 
Mines,  1911  to  1918,  an  estimate  was  made  for  1910.  These  figures  repre- 
sent the  number  employed  in  mines  during  operation,  which  is  unquestion- 
ably somewhat  higher  than  the  average  number  employed  during  the  entire 
year.2  It  is  believed  that  when  these  figures  have  been  combined  with 
average  annual  wages  from  sample  states  (Pennsjdvania,  Kansas,  Michigan, 
Illinois,  West  Virginia)  based  on  the  data  for  the  whole  country  given  by 
the  Census  of  Mines  and  Quarries,  1909,  the  resulting  total  wage  is  higher 
than  it  should  be.  A  slight  reduction  has  accordingly  been  made  on  the 
basis  of  the  number  of  days  which  mines  were  closed  down.  Figures  for 
the  number  of  days  in  operation  are  available  for  coal  mines,  and  for  some 
other  fields,  but  fluctuations  are  so  violent  and  so  erratic  that  the  data 
cannot  be  used  as  samples  for  all  mines.  Average  wages  in  certain  metal 
mining  companies,  which  were  made  available  to  the  Bureau,  were  also 
consulted  for  the  purpose  of  checking  the  general  accuracy  of  the  results 
obtained. 

(2)  Manufacturing.  The  data  for  the  number  employed,  upon  which 
the  estimates  in  the  manufacturing  group  are  based,  were  obtained  from  the 
Census  of  Manufactures  (1909,  1914  and  1919)  and  reports  of  the  statistical 
bureaus  or  labor  departments  of  five  states:  Massachusetts.  New  Jersey. 
Michigan,  New  York  and  Wisconsin.  An  index  was  made  for  these  sam- 
ple states,  checked  by  means  of  the  Census  of  Manufactures  in  1909,  191  I 
and  1919.  This  index  number  was  used  in  interpolating  the  number  of 
men  at  work  in  the  non-census  years.  The  same  sources  and  in  addition, 
the  labor  reports  of  Kansas,  Ohio  and  Pennsylvania  were  consulted  with 

"See  note  b,  Table  23  D. 

2 Several  states  report  the  average  numbers  of  men  employed  in  mines  during  the  year, 
but  these  samples  arc  too  small  to  be  of  much  use. 


274  THE  ESTIMATE  BY  INCOMES  RECEIVED 

regard  to  average  wages.  Wages  of  certain  special  groups,  such  as  textile, 
steel,  and  shipyard  workers,  and  mechanics  and  carpenters  employed  by 
railroads,  were  taken  into  consideration  for  the  purpose  of  checking  the 
general  results.  It  will  be  seen  that  from  the  abundance  of  material 
given  in  the  exact  form  desired — that  of  average  annual  wages  and  aver- 
age number  employed — it  was  possible  to  construct  a  fairly  adequate 
estimate  of  the  trend  of  aggregate  earnings  in  this  field. 

(3)  Transportation.  In  chapter  8,  in  Part  I,  Mr.  King  estimates 
the  average  number  of  persons  employed  by  steam  railroads,  street  and 
electric  railways,  express,  telephone  and  telegraph  companies.  These  fig- 
ures are  based  on  data  from  the  Interstate  Commerce  Commission  and  the 
Census,  and  comprehend  a  major  part  of  those  employed  in  transportation. 
An  index  number  was  made  from  the  totals  and  applied  to  the  number  re- 
ported in  the  Occupation  Statistics  of  1910  after  6  per  cent  had  been  sub- 
tracted for  unemployment.  This  per  cent  is  a  rough  approximation,  little 
material  of  adequate  character  being  obtainable  for  an  accurate  estimate. 
Wages  data  also  are  given  for  the  above  classes  of  employees  by  the  Inter- 
state Commerce  Commission  and  Census.  Average  annual  wages  for 
teamsters  and  drivers  in  Ohio  and  Michigan,  for  railway  mail  clerks,  and 
scattered  data  on  rates  of  pay  of  employees  in  water  transportation  were 
studied  with  a  view  to  covering  those  occupations  not  included  by  the 
Interstate  Commerce  Commission.  It  will  be  seen  that  the  data  available 
are  varied  and  fairly  comprehensive,  so  that  the  conclusions  reached 
regarding  total  wages  for  transportation  should  contain  a  minimum 
amount  of  error. 

(4)  Trade.  Owing  to  the  fact  that  there  are  no  figures  upon  which  to 
base  an  estimate  of  the  numbers  engaged  in  trade,  this  section  is  particu- 
larly unsatisfactory.  The  assumption  was  made  that  unemployment  in 
1910  would  cover  only  the  portion  of  those  engaged  who  were  earning 
wages  (clerks  in  stores,  etc.)  and  not  those  deriving  their  income  from 
profits  (retail  dealers,  etc.).  Three  per  cent  therefore  was  used  to  reduce 
the  number  attached  to  this  group  to  the  average  number  employed. 
The  assumption  was  also  made  that  in  regard  to  the  number  employed, 
trade  resembled  manufactures  more  closely  in  its  general  movement  than 
any  other  group,  as  the  clerk  in  a  store  is  more  likely  to  become  a  factory 
worker  than  a  farm  hand,  or  railroad  worker.  However,  the  unprecedented 
increase  in  manufactures  owing  to  the  war  was  probably  not  paralleled 
closely  in  trade  and  therefore,  a  composite  figure  was  used  for  the  years 
after  1910.  This  figure  was  made  by  applying  the  ratio  of  persons  engaged 
in  trade  to  the  total  population  in  1910  and  to  the  population  of  succeeding 
years,  with  corrections  for  the  business  cycle  and  the  war. 

The  weighted  average  of  all  wages,  with  the  exception  of  the  army,  has 


TOTAL  INCOME  PERSONS  HAVING  UNDER  $2,000  275 

been  used  as  the  average  wage  of  this  group.  This  figure  seems  to  be 
reasonable,  in  that  it  is  slightly  above  average  earnings  in  manufacturing 
and  below  average  earnings  in  mines  and  transportation.  Reference  to 
Table  27C  will  show  that  the  manufacturing  group  contains  about  the  same 
proportion  of  women  as  the  commercial  group;  but  the  number  of  independ- 
ent workers  is  less,  so  that  a  somewhat  lower  average  income  appears 
justified.  On  the  other  hand,  the  mining  and  transportation  groups  con- 
tain only  a  small  percentage  of  women,  so  that  we  may  look  for  a  rela- 
tively high  average  wage  in  these  groups. 

(5)  Public  Service.  In  the  public  service  group,  the  increase  in  the 
number  employed  was  assumed  to  be  at  the  same  rate  as  that  of  the  Fire 
and  Police  Departments  of  six  cities  (St.  Louis,  New  York,  Boston,  Charles- 
ton, S.  C,  Washington,  D.  C,  Chicago,  and  Baltimore).  As  unemploy- 
ment plays  little  or  no  part  in  this  group,  the  offices  being  largely  fixed  in 
number  and  kept  filled  by  election  or  appointment,  the  number  reported 
by  the  Occupation  Statistics  for  1910  was  used  for  that  year  without  any 
reduction.  An  examination  of  Federal  and  state  reports  shows  that  there 
have  been  few  increases  in  salaries  during  the  decade  in  the  case  of  officials, 
and  as  their  salaries  are  for  the  most  part  over  $2,000,  they  do  not  need 
to  be  considered  in  this  section.  The  trend  of  annual  average  salaries  of 
Fire  and  Police  Department  employees  was  considered  to  be  representa- 
tive of  the  remaining  occupations  in  this  group.  The  actual  figures,  how- 
ever, have  been  somewhat  reduced  in  order  to  take  into  consideration 
lower  grade  employees  such  as  watchmen  and  laborers.  Owing  to  the  fact 
that  Public  Service  employees  are  largely  classified  under  a  variety  of 
heads  (Clerical,  Professional,  etc),  the  total  salaries  paid  to  all  Federal, 
state,  county  and  city  employees  are  useless  for  the  present  purpose.  As 
separate  data  for  the  salaries  paid  in  each  occupation  are  difficult  to 
segregate,  the  final  figures  for  this  group  must  necessarily  be  rough  approx- 
imations. 

(6)  Professional  Service.  The  occupations  included  under  professional 
service  form  a  long  list  of  heterogeneous  professions,  teachers  being  about 
one-third  of  the  whole.  Ministers,  doctors,  dentists,  engineers,  actors, 
musicians  arc  among  the  more  important  professions  included.  The 
average  numbers  so  engaged  have  been  estimated  with  the  aid  of  the  num- 
ber of  teachers  as  reported  by  the  Bureau  of  Education,  the  number  of 
doctors  published  in  the  biennial  register  of  (he  American  Academy  of 
Physicians  and  Surgeons,  and  the  number  of  ministers  given  in  the  Census 
of  Religious  Bodies,  1900  and  1910.  The  numbers  of  Federal  judges  and 
attorneys,1  and  of  physicians  in  public  health  work  or  resident  in  prisons 

'Letter  from  the  Department  of  Justice  and  state  Reports  of  Treasury  and  Labor  De- 
partments. 


270  THE  ESTIMATE  BY  INCOMES  RECEIVED 

and  reformatories  have  remained  approximately  constant.  Samples  of 
salaries  exist  for  several  professions,  although  they  cannot  be  taken  as 
typical  of  the  whole  group  without  considerable  adjustment.  Those  used 
in  Table  23G  are  therefore  approximations  arrived  at  from  careful  study 
of  teachers'  and  ministers'  salaries  as  reported  by  the  Federal  Govern- 
ment and  from  smaller  samples  of  the  salaries  of  college  professors,  en- 
gineers and  professional  men  in  government  employ.1 

(7)  Personal  Service.  No  data  except  those  provided  by  the  Census 
exist  from  which  to  estimate  the  average  number  employed  in  Domestic 
and  Personal  Service.  The  group  includes  about  one  million  domestic 
servants,  the  other  two  and  a  half  million  being  widely  scattered  among 
barbers,  laundry  workers,  watchmen,  bartenders,  restaurant  workers, 
hotel-keepers,  and  other  minor  occupations.  The  numbers  reported  in 
the  Occupation  Statistics  of  1910  were  reduced  by  6  per  cent  to  cover  esti- 
mated unemployment;  a  preliminary  estimate  of  the  Census  Bureau  sup- 
plied the  corresponding  number  in  1920.  The  intervening  years  were 
interpolated.  In  the  years  1916,  1917,  1918  and  1919,  adjustment  was 
made  for  the  number  who  enlisted  or  were  drafted  into  the  army  and  navy, 
and  for  shifts  into  manufacturing.  This  estimate  was  made  on  the  basis 
of  the  per  cent  of  domestics  in  Class  I  of  men  registered  for  military  ser- 
vice to  the  total  number  of  Class  I,2  given  by  the  Provost  Marshal  Gen- 
eral for  1918  and  applied  to  the  average  number  in  the  army  and  navy  in 
each  of  the  war  years.  Annual  average  wages  for  some  of  the  occupations 
of  this  group  are  given  at  odd  intervals.  Especially  useful  have  been  the 
data  on  laundry  workers  in  Massachusetts  each  year,  and  in  the  District 
of  Columbia  for  1909,  1914  and  1919;  and  the  data  for  restaurant  workers 
in  Michigan  are  reported  from  1909  to  1918.  Aside  from  this,  the  material 
available  is  in  the  form  of  rates  of  pay  in  isolated  years  for  individuals  or 
small  groups,  which  are  useful  only  as  a  check.  While  the  data  are  meager 
and  the  method  necessarily  faulty,  the  evidence  indicates  that  as  a  whole 
earnings  of  this  group  have  increased  more  slowly  than  any  other  and  that 
it  is  the  lowest  paid. 

(8)  Clerical  Occupations.  Consecutive  material  for  an  adequate  esti- 
mate of  the  average  number  engaged  in  clerical  occupations  is  entirely 
lacking.  The  number  as  given  in  the  Occupation  Statistics  of  1910  was 
therefore  reduced  by  6  per  cent  to  account  for  unemployment  in  that 
year.  A  preliminary  estimate  from  the  Census  Bureau  supplied  the  num- 
ber in  1920.     The  intervening  years  were  interpolated,  and  adjustments 

1  This  method  is  likely  to  give  an  underestimate.  The  newer  business  professions  are 
likely  to  be  unreported.  For  illustration — the  income  of  accountants  in  practice  on  their 
own  account  or  in  the  employ  of  larger  firms  and  receiving  under  $2,000  each  would  probably 
total  $10  to  $20  million.  There  has  been  a  rapid  increase  in  the  law  and  all  professions  closely 
associated  with  business. — J.  E.  Sterrett. 

2  Second  report  of  Provost  Marshal  General,  1918. 


TOTAL  INCOME  PERSONS  HAVING  UNDER  82,000  277 

made  for  the  war  based  on  the  reports  of  the  Provost  Marshal  General. 
The  per  cent  of  unemployment  is  only  an  approximation,  but  has  some 
basis  in  that  it  is  the  same  as  that  used  in  transportation  and  manufac- 
turing where  a  large  number  of  clerks  are  employed.  However,  the  in- 
crease in  the  number  of  clerks  in  manufactures  (Census  of  Manufactures) 
from  1909  to  1914  was  somewhat  high  owing  to  a  change  in  the  grouping 
of  manufacturing  employees  and  hence  could  not  be  used  as  a  check.  The 
pay  of  clerks  in  railroads  1  and  in  shipbuilding,2  although  they  could  cover 
only  a  very  small  portion  of  the  whole,  were  found  to  check  with  the  figures 
used. 

The  group  has  as  its  largest  division  a  miscellaneous  class  of  "Other 
Clerks,"  but  it  also  includes  bookkeepers,  accountants,  agents,  stenog- 
raphers, and  messengers.  For  the  latter  occupations,  we  find  a  consider- 
able amount  of  wages  data  of  a  scattered  nature,  including  various  govern- 
ment investigations,  the  figures  for  office  clerks  in  factories  in  Michigan, 
for  clerks  in  railroad  transportation  in  all  years,  and  in  manufactures  in 
1909  and  1914.  Other  States  report  isolated  average  wages  for  particular 
years,  which  help  to  check  the  general  accuracy  of  the  results  shown.  A 
large  proportion  of  comparatively  skilled  workers  is  included,  so  that  the 
average  wages  should  be  relatively  high  in  comparison  with  those  in  the 
other  occupational  groups. 

(9)  Army  and  Navy.  The  Army  and  Navy  is  numerically  of  small 
importance  with  the  exception  of  the  years  1917,  1918  and  1919.  For 
these  years,  monthly  figures  published  by  the  War  and  Navy  Departments, 
have  been  used  to  determine  the  average  number  employed  during  those 
years.  The  pay  has  been  estimated  from  reports  of  the  War  and  Navy 
Departments  for  enlisted  men,  with  about  $200  per  year  added  for  food, 
clothing  and  shelter. 

Nothing  has  been  said  as  yet  of  the  number  of  persons  engaged  in  agri- 
culture. The  number  of  farm  laborers,  including  wives  and  children  of 
farmers  working  on  their  home  farms,  is  so  uncertain  that  it  is  left  for 
treatment  under  the  separate  section  on  farm  laborers. 

Since  the  total  number  of  persons  having  incomes  over  $2,000  has  been 
estimated  in  the  preceding  chapter,  it  is  necessary  only  to  subtract  the 
numbers  there  shown  from  the  total  gainfully  employed  in  order  to  arrive 
at  the  number  having  incomes  under  $2,000.  A  rough  classification  of 
persons  with  incomes  over  $2,000  according  to  the  groups  used  in  this  sec- 
tion may  be  made  from  certain  tables  shown  in  the  official  Statistics  of 
Income.     The  tables  are  entitled  Distribution  of  Incomes  by  Occupations 

1  Interstate  Commerce  Commission,  Statistics  of  Railroads,  1000  to  litis. 

2  Census  of  Manufactures,  190'J  and  Census  of  Shipbuilding,  1914,  11)16. 


278  THE  ESTIMATE  BY  INCOMES  RECEIVED 

in  1916  and  Income  Reported  from  Business  Pursuits  by  Industries,  in  1917 
and  1918. x  While  these  tables  are  not  strictly  comparable,  and  consider- 
able adjustment  has  to  be  made  in  order  to  fit  them  into  the  classifica- 
tion here  used,  the  general  results  obtained  from  the  two  sources  are  fairly 
consistent  with  each  other.  Again,  it  may  be  pointed  out  that  the  total  is 
probably  more  accurate  than  the  parts.  These  estimates  are  shown  in 
Table  23E. 

Table  23F  shows  the  numbers  left  after  subtracting  persons  having 
incomes  over  $2,000  in  each  group  from  the  total  average  number  in  that 
group.  It  will  be  noted  that  the  number  of  persons  having  incomes  of  less 
than  $2,000  shows  decreases  in  the  war  years  in  some  groups.  These 
decreases  arise  from  the  fact  that  many  persons  in  these  years  rose  into 
the  group  having  incomes  over  $2,000.  In  the  summary  (Chapter  26) 
these  changes  in  the  distribution  of  income  will  be  considered. 

The  final  results  have  been  subjected  to  a  number  of  tests.  The  num- 
ber gainfully  employed  has  been  estimated  for  each  year  and  checked  by 
advance  information  for  1920  from  the  Census  Bureau. 

The  Provost  Marshal  General  made  a  similar  projection  of  the  gain- 
fully employed  in  1917, 2  arriving  at  a  total  of  28,751,419,  excluding  farmers 
and  farm  laborers,  which  checks  well  with  the  figure  presented  for  that 
year  (29,230,000).  The  number  actually  employed  in  1917  as  well  as  in 
1918  and  1919,  was  larger  than  was  indicated  by  the  projection  which  the 
Provost  Marshal  used,  owing  (1)  to  a  shift  from  agriculture  into  industry 
and  the  army;  (2)  the  inclusion  of  college  students  and  normally  idle  per- 
sons in  the  army ;  and  (3)  the  temporary  employment,  at  wages,  of  house- 
wives and  other  women  not  usually  counted  among  the  gainfully  employed. 

With  regard  to  wage  movements,  the  weighted  average  of  wages  was 
computed  for  each  year,  and  converted  into  an  index  number  on  the  base 
1913  =  100.  This  series  may  be  compared  with  the  index  number  for  wages 
published  by  the  Bureau  of  Labor  Statistics.  In  making  this  comparison, 
one  should  bear  in  mind  what  the  Bureau  of  Labor  Statistics  has  said 
about  its  own  figures:  "The  Bureau  has  hesitated  to  attempt  the  prep- 
aration of  such  a  wage  index  because  of  the  incomplete  and  disconnected 
material  available  for  its  construction.  However,  an  index  number  has 
been  prepared  by  the  Bureau  from  all  sources  accessible,  and  is  here  pre- 
sented." The  agreement  of  the  results  arrived  at  in  these  independent 
investigations  corroborates  their  general  accuracy.     (Table  23B) 

The  division  of  the  industrial  groups  according  to  age  and  sex  is  a  vital 
factor  in  judging  the  relations  among  average  wages  ascribed  to  each. 
Table  23C  has  been  prepared  from  the  Census  of  Occupations   of  1910 

^Statistics  of  Income:  1916,  p.  31;  1917,  p.  Id;  1918,  p.   11. 

-  Second  Report  of  the  Provost  Marshal  General,  December  20,  1918,  p.  407. 


TOTAL  INCOME  PERSONS  HAVING  UNDER  $2,000 


279 


TABLE  23B 


COMPARISON  OF  THE  INDEX  NUMBER  OF  WAGES  MADE  IX  THIS  STUDY 
WITH  THAT  OF  THE  BUREAU  OF  LABOR  STATISTICS 


1910  lo  1920 


I 

II 

III 

IV 

V 

VI 

VII 

VIII 

IX 

X 

XI 

1910 

1911 

1912 

1913 

1914 

L915 

1916 

1917 

191S 

1919 

1920 

Weighted  av- 

erage wage  a 

(Dollars)  .  .  . 

595 

607 

623 

637 

643 

666 

708 

807 

1003 

1 1  I.", 

1321 

Index  number 

(1913  =  100) 

93 

95 

98 

100 

101 

105 

111 

127 

157 

180 

207 

Index  number 

of  Bureau 

of  Labor 

Statistics  b 

(1913  =  100) 

93 

95 

97 

100 

102 

103 

111 

128 

162 

184 

a  Computed  by  dividing  total  amount  of  earnings  in  Table  2311  by  total  numbers  of 
persons,  Table  23F,  excluding  Army  and  Navy. 

b  Monthly  Labor  Review,  February,  1921,  p.  74;  1919  figure  applies  to  the  spring  of 
1919. 

and  is  presented  to  aid  readers  in  canvassing  the  reasonableness  of  the 
results  reached  in  this  investigation. 

TABLE  23C 


PERCENTAGE  DIVISIOX  ACCORDIXO  TO  AGE  AXD  SEX  OF  THE  NUMBER 
GAINFULLY  EMPLOYED  IX  EACH  INDUSTRIAL  GROUP  a  IX  1910 


(Clerical  help  included) 


I 

II 

Ill 

IV 

V 

( '.roup 

Percentage  of  males 

Percentage  of  females 

Total 

Over  20 
years  of  age 

65.2 
86.5 
73.7 
85.0 
71.0 
91.3 
51.2 
28 .  s 

Under  20 
years  of  age 

Over  20 

years  of  age 

Under  20 
years  of  age 

Agriculture 

20.1 
13. 4 
11.1 

10.1 
112 

l  :; 
:;  3 
3  ."» 

8.6 

0.1 
10.6 

3.0 
12.0 

:;  .9 
37.9 
:.:; .  1 

6.1 
0.0 
4.6 
1.9 
5  8 
0  5 

7.6 

lit'. 

100.0 

Mines 

1(11)  0 

Manufacturing 

Transportation 

Trade 

Public  Service 

100  0 

kid  ii 

101)  I) 
100. 0 

Professional  Service.. . . 

Persona]  Service 

101)  0 
100  0 

^Occupation  Statistics,  1910,  Table  VI,  pp.  302 ff. 

With  these  explanations,  the  five  tables  described  in  the  preceding  text 
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TOTAL  INCOME  PERSONS  HAVING  UNDER  $2,000  289 

§  23c.  The  Earnings  of  Farm  Laborers 

The  Census  for  1910  places  the  number  of  farm  laborers  at  6,390,000, 1 
and  estimates  that  $651,611,287  2  was  expended  by  farmers  for  labor. 
These  figures  would  yield  the  rather  absurd  average  annual  wage  of  $102 
for  each  farm  laborer.  Inquiry  has  developed  the  fact  that  among  farm 
laborers  are  included  those  wives  and  children  of  fanners  who  work  only 
at  irregular  intervals,  and  often  for  only  a  few  days.  The  ( Jensus  uses  the 
terms  "home  farm"  and  "working  out"  in  subdividing  farm  laborers. 
There  are  reported  under  the  title  "home  farm,"  3,310,000  persons  of 
whom  2,216,000  are  under  twenty  years  of  age.  Of  those' over  twenty 
years,  563,000  are  women,  leaving  only  531,000  males  over  twenty  years 
old  in  the  home-farm  group.  These  laborers  appear  to  be  mainly  sons 
working  with  their  fathers,  and  their  earnings  are  probably  included  as 
part  of  the  general  income  of  the  farm. 

There  are  left  therefore,  as  independent  income  receivers  3,080,000,  of 
whom  2,637,000  are  laborers  "working  out,"  and  443,000  are  under  spe- 
cial classifications.  Of  the  entire  group,  274,000  are  under  sixteen  years  of 
age,  and  350,000  are  women.  Even  after  the  numbers  are  reduced  in  this 
way,  when  they  are  taken  in  conjunction  with  the  $652  million  paid  out 
by  farmers,  we  still  have  the  low  average  wage  of  $212. 

The  total  amount  paid  by  farmers  for  labor  is  generally  accepted  by 
qualified  judges  as  approximately  correct.  It  was  compiled  by  asking 
each  farmer  what  sum  he  paid  out  for  labor.  The  number  of  farms  and 
acreage  under  cultivation  remained  approximately  the  same  throughout 
the  decade,  so  that  the  assumption  is  made  that  the  amount  of  hired  help 
remained  about  the  same.3  The  only  item  of  change,  then,  is  in  the  rate  of 
monthly  pay  without  board,  which  is  taken  as  typical  of  the  movement  of 
wages.  These  reports  give  the  average  wages  of  a  large  number  of  report- 
ing districts  and  their  accuracy  is  only  approximate. 

While  the  amounts  shown  in  Column  III  of  table  231  are  all  that  were 
paid  by  farmers,  yet  it  is  clear  thai  more  than  this  must  have  been  earned 
by  those  who  were  classed  as  agricultural  laborers.  The  group  of  3,080,000 
who  worked  out  probably  earned  at  least  an  average  of  $400  per  year. 
The  best  conjecture  available  is  thai  about  one-quarter  million  laborers  are 
hired  by  the  year,  some  one  and  one-half  million  by  the  month  for  a  period 
of  three  to  seven  months,  and  about  a  million  more  are  employed  by  the 
day.  Conditions  in  different  parts  of  the  country  vary  so  greatly  that 
estimates  based  on  any  locality  must  be  accepted  with  reservations,  and 

'Bureau  of  the  Census,  Occupation  Statistics,  p.  302  IT.  includes  agricultural  laborers, 
other  agricultural  pursuits  and  other  occupations  under  forestry  and  animal  husbandry. 

2  Abstract  of  the  Census,  1910,  p.  372. 

3  In  1920,  this  preliminary  Occupation  Statistics  indicate  slightly  under  three  million  inde- 
pendent income  receivers,  as  against  slightly  over  three  million  in  1910. 


200 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


these  numbers  are  given  only  as  rough  approximations.  The  month  and 
day  laborers  ordinarily  find  some  other  occupation  during  the  winter  to 
supplement  their  wages  from  the  farm. 

The  total  earning  capacity  of  this  group  in  1010  must  have  been  in  the 
neighborhood  of  one  to  one  and  a  quarter  billions,  of  which  only  $652  mil- 
lion was  received  in  money  from  farmers.  It  is  not  unreasonable,  there- 
fore, to  add  $500  million  for  1910  to  the  $652  million  in  order  to  arrive  at 
total  earnings.1  This  assumption  imputes  a  lower  earning  power  to  farm 
laborers  than  to  any  other  class,  which  is  in  accord  with  what  seem  to  be 
the  facts.  A  similar  amount,  increased  in  proportion  to  the  general  wage 
level,  has  therefore  been  added  to  the  estimate  of  farm  laborers'  income 
for  each  subsequent  year.  The  amount  for  1920  has,  however,  been 
increased  to  allow  for  the  return  of  250,000  men  from  the  army  to  farm 
labor,  and  their  rate  of  pay  is  added.  This  increases  the  proportionate 
amounts  shown  for  1920  by  1/12  (3,080,000-^250,000). 

TABLE  231 


ESTIMATED  EARNINGS  OF  FARM  LABORERS 

1910  to  1920 
(Millions  of  dollars) 


Year 

I 

Monthly 
wages  with- 
out board  a 

II 

Relative 
pay 

III 

Total 
wages  from 
farm  laboi  b 

$   652 
682 
701 
718 

708 
714 

778 
958 

1,157 
1,334  d 

1,668 

IV 

Other 
earnings  c 

V 

Total 
earnings 
of  farm 
laborers 

1910 

$27.50 
28.77 
29.58 
30.31 

29.88 
30.15 
32.  S3 
40.43 

48.80 
56 .  29 
64.95 

100.0 
104.6 
107.6 
110.2 

108.7 
109.6 

119.4 
147.0 

177.5 
204.7 
236.2 

$    500 
511 

527 
538 

543 
565 
597 
683 

844 

96S 

1,110 

SI,  152 

1911 
1912. 
1913. . . 

1914 
1915 

1916    .  .  . 
1917 

1918 

1919 

1,193 
1,228 
1,256 

1.251 
1,279 
1,375 
1,641 

2,001 
2,302 

1920 . 

2,778  e 

a  St,:l  1st  in,  I  Abstract,  1920,  p.  303. 

b  $651,61 1,2S7,  Abstract  of  the  C<  nsus,  1910,  p.  372,  projected  by  index  in  Column  II. 
•  $500  million  in  1910  projected  by  index  of  wages. 

''The  recently  published  Summary  of  the   1919  Census  of  Agriculture  places  the 
amount  expended  by  farmers  for  labor  at  $  1,356,403,452. 
e  For  explanation  see  text. 

i  Duplication  of  wages  actually  earned  in  other  industries,  to  which  farm  laborers  turn 
in  winter,  is  avoided  because  of  the  fact  that  they  are  not  enumerated  in  those  industries. 
There  is  no  error  in  the  total;  but  there  is  a  certain  amount  of  error  in  the  manner  in  which 
the  earnings  are  divided  between  industries. 


<* 


TOTAL  INCOME  PERSONS  HAVING  UNDER  $2,000 


291 


§  23d.  Pensions 

Pensions  of  the  Federal,  State,  and  City  governments  may  be  credited 
entirely  to  persons  having  incomes  under  $2,000.  The  Commissioner  of 
Pensions  reports  annually  the  amounts  paid  for  Federal  pensions;  state 
pensions  are  reported  in  the  Financial  Statistics  of  States;  and  city  pen- 
sions are  reported  in  the  Financial  Statistics  of  Cities.  Both  of  these  vol- 
umes are  issued  by  the  Census  Bureau  at  irregular  periods,  so  that  figures 
for  intermediate  years  have  been  interpolated.  Other  forms  of  pensions, 
received  from  corporations  and  lodges,  are  incapable  of  determination; 
but  they  appear  to  be  so  small  a  factor  in  the  total  that  they  may  safely 
be  disregarded. 

TABLE  23J 

FEDERAL,  STATE  AND  CITY  PENSIONS 

1910  to  1920 

( Millions  of  dollars) 


I 

Federal  « 

II 

State 

III 

City 

IV 

Total 

1910 

1911 

1912 

1913 

1914. . 

1915.                                         

$159.9 
157.3 
152.9 
174.1 

172.4 

165.5 
159.1 

160.  S 
179.8 

2122.2 

S  8.4  6 

9.76 

11.06 

12.3  6 

13.6  b 

14.9  c 

16.1  c 
17.3  6 
18  6 

20.2  c 

$  6.8b 
7.(1'' 

8  5  I 

9  2  6 
9.9  6 

10.6  d 

11.6  6 

12.7  d 

13  •")'' 
I  1  3  6 

$175.1 
174.6 

172    t 
195  6 
195.9 

191.0 

1916 

1917 

1918 

1919. 

186.8 
190. 8 
211.9 

':.  i  7 

1920' 

a  Annual  Reports  of  the  Commissioner  of  Pensions. 

b  Interpolated. 

cU.  S.  Census,  Financial  Statistics  of  States  (1915,  p.  90;  1916,  p.  92;  1918,  p.  90; 
1919,  p.  84). 

<*U.  S.  Census,  Financial  Statistics  of  Cities  (1911,  p.  191;  1912,  p.  201;  1915,  p.  L93; 
1917,  p.  207;  1918,  p.  191). 

«  Data  not  available. 


§  23e.  The  Rental  Value  of  Homes  Owned  by  Their  Occupants 

The  Census  of  1910  reports  the  number  of  homes,  excluding  farm  homes 
(which  are  taken  up  in  Chapter  24  under  farmers'  incomes),  as  14,131 .'.,  !■">.' 
Of  these,  3,408, S~>1  were  owned  unencumbered,  1,701,002  were  owned  on- 
cumbered,  and  135,404  were  not  reported  in  regard  to  the  question  of 

1  Census  of  Population,  1910,  p.  1294. 


292 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


encumbrance.  The  remaining  eight  million  homes  were  presumably  rented, 
and  the  income  accruing  from  these  rentals  is  included  under  other  head- 
ings. Owing  to  the  lack  of  later  information,  it  has  been  necessary  to  as- 
sume for  purposes  of  computation,  that  the  number  of  homes  owned  in- 
creased since  1910  in  the  same  ratio  as  the  general  population.  The 
amount  of  encumbrance  has  been  placed  at  one-third  the  total  value,  an 
estimate  arrived  at  after  consultation  with  a  number  of  real  estate  experts. 

The  present  estimate  is  concerned  only  with  homes  owned  by  those 
having  incomes  under  $2,000,  and  it  is  therefore  necessary  to  subtract 
from  the  total  number  those  homes  owned  by  persons  having  more  than 
$2,000  per  year.  Here  we  enter  the  realm  of  pure  conjecture,  but  it  appears 
likely  that  the  major  portion  of  all  homes  were  owned  by  persons  with 
incomes  under  $2,000 — say  3  million  of  the  homes  owned  unencumbered 
and  one  and  a  half  million  of  the  homes  owned  encumbered.  The  best 
that  can  be  said  of  an  estimate  made  by  such  a  method  is  that  the  error  is  a 
constant  one,  and  that  the  total  is  not  a  large  factor  in  the  entire  national 
income. 

The  question  of  deciding  on  an  estimate  for  average  rental  is  almost 
equally  hazardous,  but  here  there  is  some  statistical  basis  for  the  estimate 
made.  One  method  is  to  ascertain  as  nearly  as  we  can  the  proportion  of 
total  income  that  is  spent  on  house  rent,  and  assume  that  the  owner  derives 
this  proportion  of  his  income  from  the  use  of  his  home.  According  to  the 
results  of  the  cost  of  living  survey  made  by  the  Bureau  of  Labor  in  1918  to 
1919,  13.4  per  cent  of  the  total  average  yearly  expenses  per  family  or  12.6 
per  cent  of  total  average  family  income,  was  paid  for  rent.1 

Other  estimates  of  the  proportion  of  expenditure  for  shelter  to  all  expen- 
ses for  consumption  goods  are  as  follows : — 

TABLE  23K 


PERCENTAGE  OF  INCOME  EXPENDED  FOR  SHELTER  <* 


Authority 

Date 

Number  of 
families 

Place 

Percentage 

U.  S.  Bureau  of  Labor  Statistics .  . 
U.  S.  Bureau  of  Labor  Statistics .  . 
U.  S.  Bureau  of  Labor  Statistics .  . 
U.  S.  Railroad  Wage  Commission 
Dallas,  Texas  Wage  Commission.  . 
R.  C.  Chapin  income  $1000-$1099 

1901 
1917 
1917 
1915 
1917 
1907 

11,156 

60S 

512 

265 

50 

31 

U.S. 

New  York 
Phila.,  Pa. 
U.S. 

Dallas,  Texas 
New  York 

18.12 
12.91 
12.04 
20.00 
14.51 
18.01 

Average,  weighted  according  to  number  of  families 17.65 

a  National  Industrial  Conference  Board,  Report  No.  9,  p.  4. 

1  Monthly  Labor  Review,  August,  1919,  p.  118.     This  investigation  covered  12,096  families 
in  92  industrial  renters. 


,* 


TOTAL  INCOME  PERSONS  HAVING  UNDER  $2,000  293 

The  average,  17.G5  per  cent,  shown  in  table  23K,  is  the  proportion  which 
the  National  Industrial  Conference  Board  accepts  in  its  studies  of  the  cost 
of  living.  It  will  be  seen,  however,  that  the  system  of  weighting  gives  great 
prominence  to  the  investigation  of  1901  by  the  Bureau  of  Labor  Statist  ics, 
and  that  all  but  one  of  the  later  investigations,  though  more  restricted  in 
their  scope,  show  a  lower  percentage  of  total  income  spent  for  rem . 

What  probably  happened  was  that  the  proportion  of  rent  to  the  total 
income  decreased  during  the  decade; — at  least  until  1918.  For  the  year 
1910,  therefore,  the  composite  figure  of  the  National  Industrial  Conference 
Board  is  perhaps  preferable  to  the  lower  ratio  of  rent  found  in  1918  to  1919 
by  the  Bureau  of  Labor  Statistics.  The  average  family  income  in  1910 
was  about  S1200,1  and  17.65  per  cent  of  this  gives  $211.80.  But  a  further 
reduction  must  be  made;  not  all  rent  is  to  be  considered  as  net  income  to 
the  recipient.  About  40  per  cent  of  the  rent  goes  for  various  expenses  of 
upkeep,  repair,  taxes,  etc.,  leaving  perhaps  60  per  cent  as  net  return.  This 
would  leave  $147.08 — or  say,  $150.00  as  the  average  amount  which  home 
owners  received  as  income  from  their  homes  in  1910,  based  on  this  method 
of  computation. 

The  average  rentals  in  91  localities  paid  by  families  having  an  income 
between  $1200  and  $1500  per  year  is  reported  in  the  Monthly  Labor 
Review  as  $174  per  year.2  Since  these  families  varied  in  income  and  size  a 
further  study  was  made  of  families  of  five  having  an  income  of  $1300, 
and  the  average  amount  of  rent  was  found  to  be  $167  per  year. 

The  average  rental  paid  in  1920  in  92  cities  by  laboring  families  is  given 
in  the  Monthly  Labor  Review}  It  is  stated  that  "families  who  live  in 
houses  or  apartments  owned  by  themselves,  and  families  living  in  houses 
or  apartments  where  either  heat  or  light  or  both  are  included  in  the  rent, 
have  been  omitted."  This  is  therefore  a  selected  sample  from  which  the 
higher  ranges  of  income  are  excluded.  The  average  rent  of  $167.79  may 
accordingly  be  considered  the  low  limit,  for  1920.  This  figure  should  be 
compared  with  an  indicated  rent  of  $219  for  1920,  which  is  found  by  apply- 
ing the  average  of  the  index  numbers  of  the  National  Industrial  Conference 
Board  and  the  Bureau  of  Labor  Statistics  (Table  23L)  to  the  basic  average 
rent  of  $150  in  1910. 

If,  then,  $150  per  year  is  accepted  as  an  average  figure  in  1910  for  the 
income  received  from  homes  by  their  owners,  and  this  is  combined  with 
the  conjectured  number  of  homes,  the  total  income  in  that  year  was  about 
$600  million.  This  should  be  increased  by  an  index  number  indicating 
changes  in  rents,  and  for  this  purpose  the  average  of  the  indices  computed 

i  Estimated  from  total  income  under  $2,000  and  number  of  families. 

2  Monthly  Labor  Rerinv,  September,  1019,  pages  9  to  30.  This  survey  was  made  under 
the  direction  of  Dr.  W.  F.  Ogburn. 

s  Monthly  Labor  Review,  September,  1920,  pages  84  to  91. 


294 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


by  the  National  Industrial  Conference  Board  and  the  Bureau  of  Labor 
Statistics  is  used.  The  final  results  show  a  total  income  from  this  source 
varying  from  $600  to  about  .$900  million. 

TABLE  23L 

RENTAL  VALUE  OF  HOMES  OWNED  BY  OCCUPANTS  HAVING  INCOMES 

UNDER  $2,000 

1910  to  1920 


I 

II 

III 

IV 

Year 

Index  numbers  of  house  rents 

Estimated 

Bureau  of 
Labor  Sta- 
tistics a 

National 
Industrial 
Conference 

Board  b 

Average 

rental  value 
of  homes  owned 
by  occupants  d 

1910 

Per  cent 

100 
100 
101 . 5 
102.3 
101 
105 
114  f 
134.9c 

Per  cent 

100 

100 

100 

101.5 

105 

115 

128 

158 

Per  cent 

100 

100 

100.8 

101.9 

103 

110 

121 

146.5 

Million  dollars 

$600  e 

1911 

600  e 

1912 

600  e 

1913 

600 

1014 

IKK) 

1916 

1917 

1918 

(ill.-, 

611 
618 
660 

1919 

1920. 

726 

879 

a  Monthly  Labor  Review,  October,  1920,  p.  65.  These  studies  are  based  on  18  cities 
from  1914  to  December,  1917,  and  thereafter  on  31  cities.  Prior  to  1919,  the  figures 
are  given  for  December,  and  are  interpolated  for  July. 

b  Report  No.  30,  September,  1920.  These  studies  are  based  on  reports  from  359 
agencies  in  158  cities.    The  figures  are  for  July  of  each  year. 

c  Figures  for  June. 

d  For  estimate — $600  million — see  text.    This  amount  is  projected  by  Column  III. 

e  Estimated. 


§  23f.  Income  from  Investments 

The  most  obvious  method  of  estimating  income  from  investments  is  to 
find  what  proportion  it  normally  bears  to  total  income.  This  may  be  done 
in  several  ways  and  the  results  compared. 

The  first  method  is  to  prolong  the  curve  made  from  income-tax  data  to 
show  the  relation  between  income  from  investment  and  income  from  per- 
sonal  ('Minings  to  include  the  lower  ranges.  This  curve,  however,  is  defect- 
ive in  two  ways:  (1)  It  is  necessary  to  class  all  "business  income"  as  per- 
sonal earnings,  on  the  ground  that  it  is  due  to  effort  and  only  differs  from 
personal  earnings  in  its  contractual  nature.     (2)  This  curve  tells  us  what 


W 


TOTAL  INCOME  PERSONS  HAVING  UNDER  82,000  295 

arc  the  probable  personal  earnings  given  any  sized  income,  and  not  the 
probable  income  given  any  particular  earnings.  Were  the  correlation 
perfect,  this  form  of  statement  would  make  no  difference;  but  unfortu- 
nately the  correlation  is  unknown,  and  the  original  data  are  not  in  such 
shape  that  they  can  be  turned  into  a  different  form. 

This  curve  taken  at  its  face  value  indicates  that  personal  earnings 
should  be  increased  as  follows,  in  order  to  arrive  at  total  incomes  of  indi- 
viduals: 

TABLE  23M 

RELATION  BETWEEN  PERSONAL  EARNINGS  AND  TOTAL  INCOME 
INDICATED  BY  INCOME-TAX  DATA 

1918 

Average  personal  earnings  Average  total  income 

82,000 $2,215 

1,800 1,960 

1,600 1,713 

1,400 1,480 

1,200 1,245 

1,000 1,023 

800 811 

600 603 

100 401 

200 200 


It  is  clear  that  this  curve  cannot  be  projected  more  than  a  short  distance, 
say  to  SI, 500,  before  it  loses  all  semblance  of  reality.  The  most,  therefore, 
that  can  be  said,  is  that  less  than  13  per  cent  (the  amount  reported  by  the 
Bureau  of  Internal  Revenue  in  its  lowest  range,  82, 000-83,000)  and  proba- 
bly not  over  10  per  cent  of  the  incomes  below  82,000  are  due  to  invest- 
ments of  one  kind  or  another. 

Further  light  is  cast  on  this  question  by  a  sample  of  12,090  family 
incomes  well  scattered  in  regard  to  area  which  were  collected  by  the  Bu- 
reau of  Labor  Statistics  in  1919.  This  summary  shows  the  percentage 
relation  of  total  income  to  total  earnings  for  the  entire  range  of  incomes 
from  "under  8900"  to  "over  82,500,"  thus  considerably  overlapping  the 
income  tax  class.    These  relations  are  as  shown  on  page  296. 

It  will  be  seen  that  no  definite  trend  is  indicated  towards  a  larger  per- 
centage of  income  from  investments  with  the  rise  in  incomes.  Such  <liu;ht 
increase,  as  there  is,  does  not  approach  the  13  per  cent  of  the  $2,000- 
83,000  class  reported  by  the  Statistics  of  Income.  However,  it  is  stated  that 
the  effort   made  in   collecting  these  data  was   to  exclude  families  which 


290 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


received  any  considerable  portion  of  their  income  from  sources  other  than 
the  husbands'  earnings.  It  is,  therefore,  to  be  expected  that  the  propor- 
tion of  income  from  investments  will  normally  be  higher  than  that  shown 
in  this  sample,  and  that  33^  to  4  per  cent  may  therefore  safely  be  regarded 
as  a  minimum  figure. 

TABLE  23N 

PERCENTAGE  OF  TOTAL  INCOME  TO  TOTAL  EARNINGS 

(Based  on  a  sample  of  12,096  families  a) 


Income  in  dollars 


Under $900.  .  . 

$900-1,200 

1,200-1,500.  .  . 
1,500-1,800.  .  . 
1,800-2,100.  .  . 
2,100-2,500.  .  . 
2,500  and  over . 


White  families 

Colored  families 

103.96 

103.37 

103.65 

103.86 

103.84 

104 . 93 

104.15 

104.67 

103.82 

108.72 

105.15 

104.98 

103.95 

100  49 

a  Monthly  Labor  Review,  December,  1919,  pp.  40-41. 

The  total  incomes  of  1,602  school  teachers  in  five  cities  were  reported  as 
$1,645,400  in  1913. ]  These  incomes  were  analyzed  in  regard  to  their 
sources,  and  it  was  found  that  $1,552,040  came  from  salaries,  and  $92,820 
from  investments.    The  latter  is  5.98  per  cent  of  the  former. 

In  arriving  at  a  decision  as  to  the  percentages  to  be  used,  the  limits  were 
taken  as  between  4  per  cent  and  10  per  cent.  The  former  is  known  to  be 
low.  The  latter  rests  on  questionable  assumptions.  In  view  of  the  fact 
that  the  modal  income  is  placed  at  a  figure  below  $1,000  and  that  there  is 
probably  some  relation  between  income  from  wages  and  income  from  prop- 
erty, it  is  believed  that  no  great  error  can  be  involved  in  adding  6  per  cent 
to  personal  earnings  in  order  to  arrive  at  the  total  income  of  persons  of  the 
group  under  $2,000.2 

The  results  of  this  computation  are  shown  in  the  following  table: 

1  Report  of  the  Committee  on  Teachers'  Salaries  and  Cost  of  Living,  1913. 

2Bowley,  The  Division  of  the  Product  of  Industry,  page  14,  estimates  the  total  "  earned  " 
in  England  below  £160  to  be  £1,046  million  and  the  total  "unearned  "  income  below  £160 
to  be  £50  million,  or  about  5  per  cent. 


<* 


TOTAL  INCOME  PERSONS  HAVING  UNDER  82,000 


297 


TABLE  230 


AMOUNT  RECEIVED  FROM   INVESTMENTS  BY  ALL  PERSONS  HAVING 

INCOMES  UNDER  $2,000 


1910  to  1920 
(Millions  of  dollars) 


Year 

Personal  earnings 

Estimated  income 
from  investments 

1910 

$13,711 
14,311 
14,971 
15,458 
15,462 

15,717 
18,294 
21.179 

27,777 
29,882 
33,020 

$    823 

1911  . 

859 

1912 

1913 

S9X 
927 

1914 

1915 

928 
943 

1916.  . 

1,098 

1917 

1,271 

1918 

1919 

1,667 

1,793 

1920 

1,981 

CHAPTER  24 
FARMERS'  INCOME 

§  24a.  Introduction 

The  information  concerning  farmers'  income  is  fragmentary,  but  suffi- 
cient in  volume  to  justify  the  hope  of  attaining  a  fairly  accurate  estimate. 
Before  this  estimate  is  presented  certain  peculiarities  of  farmers'  incomes 
and  of  the  data  concerning  them  must  be  mentioned. 

(1)  There  is  no  other  industry  in  which  non-monetary  income  makes  so 
large  a  proportion  of  the  total  as  in  farming.  Besides  the  rental  values  of 
the  farm  homes  occupied  by  owners,  we  must  count  in  the  value  of  the 
food  and  fuel  which  farmers  produce  for  their  own  consumption. 

(2)  Usually  the  farmer  is  not  only  a  producer  but  also  a  land  speculator. 
Indeed,  it  is  rather  upon  the  increase  in  the  value  of  his  land  than  upon  the 
sale  of  his  produce  that  the  farmer  rests  whatever  hope  he  cherishes  of 
growing  rich.  How  large  the  growth  in  land  values  is  appears  from  the 
Censuses  of  1900  and  1910,  which  report  an  increase  in  the  value  of  farm 
lands  of  $15  billion  in  addition  to  an  increase  of  $5  billion  in  the  value  of 
farm  buildings,  machinery,  and  live  stock.1  Fifteen  billions  for  all  farms  in 
ten  years  means  an  average  annual  increase  in  the  value  of  each  farm 
amounting  to  $323.  In  the  decade  covered  by  our  estimates  the  average 
increase  must  have  been  much  larger,  because  of  the  great  rise  in  the  prices 
of  farm  lands  which  culminated  in  1920.2  When  a  farmer  realizes  a  profit 
by  selling  his  land  at  an  enhanced  price,  that  profit  constitutes  income  to 
him  as  an  individual.  But  gains  of  this  kind  do  not  constitute  income  to 
the  nation  as  a  whole,  except  in  so  far  as  the  increased  farm  values  arise 
from  such  improvements  as  are  made  by  clearing,  fencing,  draining,  irrigat- 
ing or  fertilizing  land.  The  nation  gained  no  increase  of  useful  goods 
from  marking  up  the  price  of  its  farm  lands  in  1919-20  and  lost  no  useful 
goods  from  marking  them  down  again  in  1920-21.  Hence  we  make  no 
effort  to  estimate  the  profits  and  losses  which  fanners  make  from  fluctu- 
ations in  land  values. 

(3)  Of  course  farmers  obtain  some  income  from  other  sources  than  the 

i  Needless  to  say,  these  official  figures  have  a  wide  margin  of  error.  In  particular,  figures 
for  land  values  and  the  value  put  upon  buildings  are  unsatisfactory,  especially  in  areas  of 
decreasing  farm  population.  In  such  districts,  the  selling  values  of  the  farms  are  often  less 
than  the  cost  of  the  buildings  alone. 

^  These  figures  have  since  been  reported,  and  show  an  increase  of  land  values  from 
$28,475  million  to  $54,830  million. 

298 


FARMERS'  INCOME  299 

cultivation  of  their  own  farms.  Their  share  in  the  income  from  tax- 
exempt  securities  has  been  included  under  thai  heading  and  musl  not  be 
counted  again  here.  But  another  item  of  importance  to  farmers  must  be 
allowed  for — the  money  they  make  by  doing  work  for  others.  How  much 
these  earnings  amount  to  can  be  calculated  only  in  the  roughest  maimer. 
The  few  small  samples  of  farmers'  incomes  which  covet-  this  point  indicate 
outside  earnings  varying  between  $48  and  SI  17  per  year  per  farmer.  On 
this  basis  the  aggregate  outside  earnings  of  all  farmers  run  between  one- 
quarter  and  three-quarters  of  a  billion  annually. 

Concerning  sources  of  information,  it  should  be  noted  that  income-tax 
returns  are  of  little  help  in  estimating  farmers'  incomes.  In  1916  when  the 
exemption  limit  was  $3,000,  only  14,407  of  the  six  and  a  half  million  fanners 
filed  tax  returns.  Since  that  year  the  tax  returns  have  not  been  classified 
by  occupations.  In  1917,  however,  there  was  reported  net  income  of 
$806,163,957  from  "agriculture  and  animal  husbandry,"  divided  among 
251,838  returns.  In  1918  (the  latest  date  for  which  detailed  statistics 
have  been  published),  the  corresponding  figures  were  $1,122,532,163  and 
372,336. '  The  reasons  why  so  small  a  proportion  of  the  farmers  figure  in 
these  returns  even  in  a  prosperous  year  are  clear.  As  a  class,  farmers 
belong  among  the  small  business  men  with  average  incomes  not  much  in 
excess  of  the  average  earnings  of  adult  male  wage-earners.  Further,  of 
these  modest  incomes  a  considerable  part  is  in  form  not  subject  to  taxa- 
tion— the  rental  value  of  their  owned  homes,  the  food  and  fuel  they  pro- 
duce for  themselves.  Finally,  small  business  men  with  incomes  near  the 
exemption  limit,  especially  men  who  do  not  keep  accurate  accounts,  prob- 
ably evade  more  extensively  than  any  other  class  the  obligation  to  make 
tax  returns. 

The  basic  data  upon  which  all  estimates  of  farmers'  incomes  must  rest 
are  the  Department  of  Agriculture's  annual  statements  of  the  gross  value 
of  agricultural  produce.  These  figures  for  1910-20  are  shown  in  Table 
24A.  Their  chief  defect  is  that  they  contain  a  vast  amount  of  duplica- 
tion. Crops  fed  to  live  stock  are  counted  twice,  first  as  the  value  of  the 
crops  themselves,  second  in  the  value  of  the  live  stock.  "Feeders"  from 
the  ranges  are  counted  once  when  sold  by  the  ranchman  and  again  when 
sold  as  fat  stock.  The  chief  problem  is  to  ascertain  the  amount  of  this 
duplication  year  by  year. 

The  violent  price  fluctuations  of  1916-20  give  rise  to  special  difficulties 
in  piecing  together  the  fragmentary  data  which  come  from  different  years. 
Of  the  increase;  in  the  gross  wealth  produced  on  farms  according  to  Table 
24A— an  increase  from  $9  billion  in  1910  to  $25  billion  in  1919— much  the 

'The  1919  Statistics  of  Income  has  since  been  published.  It  shows  118,945  businesses 
under  "Agriculture  and  related  industries,"  with  a  total  net  income  of  $  1,211,260,562. 


300 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


TABLE  24A 


THE  NUMBER  OF  FARMS  AND  THE  GROSS  WEALTH  PRODUCED 

ANNUALLY 


1910  to  1920 


Year 


1910. 
1911. 
1912. 
1913. 

1914. 

1915. 
1910. 
1917. 
1918. 
1919. 
1920. 


Number  of  farms  a 
(Thousands) 


6,362 
6,371 
6,380 
6,388 
6,396 

6,405 
6,414 
6,423 
6,432 
6,441 
6,450 


Gross  wealth 
produced  on  farms  b 
(Millions  of  dollars) 


$  9,037 
8,819 
9,343 
9,850 
9,895 

10,774 
13,406 
19,331 
22,479 
24,961 
19,856 


a  Figures  for  1910  and  1920  are  from  an  advance  bulletin  of  the  Bureau  of  the  Census, 
entitled  Number  of  Farms  by  States  and  Counties,  1920.  Other  figures  are  interpolated 
along  a  straight  line. 

A  "farm"  for  census  purposes  is  all  the  land  which  is  directly  farmed  by  one  person 
managing  and  conducting  agricultural  operations,  either  by  his  own  labor  alone  or 
with  the  assistance  of  members  of  his  household  or  hired  employees.  The  term  "agri- 
cultural operations"  is  used  as  a  general  term  referring  to  the  work  of  growing  crops, 
producing  other  agricultural  products,  and  raising  animals,  fowls,  and  bees.  A  "faim" 
as  thus  defined  may  consist  of  a  single  tract  of  land  or  of  a  number  of  separate  and 
distinct  tracts,  and  these  several  tracts  may  be  held  under  different  tenures,  as  where 
one  tract  is  owned  by  the  farmer  and  another  tract  is  hired  by  him.  Further,  when  a 
landowner  has  one  or  more  tenants,  renters,  croppers,  or  managers,  the  land  operated 
by  each  is  considered  a  "farm."    Abstract  of  the  Census,  1910,  p.  265,  footnote  1. 

b  Statistical  Abstract  of  the  U.  S.  1919,  p.  183.  Duplication  of  animals  and  grain  fed 
to  animals  is  included. 

greater  part  represents  merely  a  change  in  monetary  values.  The  wholesale- 
price  index  numbers  compiled  by  the  Bureau  of  Labor  Statistics  show 
that  the  prices  of  farm  products  rose  from  100  in  1914  to  234  in  1919,  or 
somewhat  faster  than  the  general  price  level,  for  which  the  corresponding 
figures  are  100  and  212. *  But  not  all  of  the  increase  was  of  this  nominal 
character.  The  index  numbers  of  the  physical  volume  of  agricultural  out- 
put, recently  made  by  Professors  E.  E.  Day  and  W.  W.  Stewart,  agree  in 
showing  that,  with  the  sharp  oscillations  characteristic  of  farming,  the 
volume  of  goods  produced  was  increasing  during  the  decade. 

§  24b.  First  Estimate — Based  on  Total  Production  and  Expenses 

Dr.  E.  A.  Goldenweiser  2  has  attempted  to  estimate  the  proportions  by 
which  the  "gross  value  of  wealth  produced  on  farms"  reported  by  the 

i  Monthli/  Labor  Review,  February,   1921,  pp.  44,  45. 
2  American  Economic  Review,  March,  1916. 


S 


FARMERS'  INCOME 


301 


TABLE  24B 


INDICES  OF  PHYSICAL  PRODUCTION  FOR  AGRICULTURE 


Base,  Dav,  1909-1913  =  100  « 
Stewart,  1911-1913  =  100'; 


Year 

Day 

Stewart 

Year 

Day 

Stewart 

1909 

95 

95 

1915 

113.4 

116 

1910 

99.1 

98 

1910 

100.4 

101 

1911 

94.1 

93 

1917 

108.5 

110 

1912 

111 

111 

1918 

107.1 

ins 

1913 

98.2 

96 

1919 

110.6 

112 

1914 

108.5 

108 

1920 

115.6 

°  Review  of  Economic  Statistics,  Haivard  Committee  on  Economic  Research,  Septem- 
ber, 1920,  p.  255. 
b  Annual  Proceedings  of  the  American  Economic  Association,  December,  1920. 


Department  of  Agriculture  should  be  changed  in  order  to  arrive  at  the  net 
value  production  of  farms.  In  so  doing,  he  has  decreased  the  total  amount 
reported  by  the  value  of  food  crops  fed  to  animals  and  has  increased  it  by 
the  value  of  the  produce  of  the  farm  which  is  directly  consumed  by  the 
farmers'  families.  In  this  way,  he  has  arrived  at  the  figure  for  farmers' 
incomes  in  1909  shown  on  page  302. 

These  figures  were  based  on  the  returns  of  the  Census  of  1910,  supple- 
mented by  the  estimates  of  W.  J.  Spillman  1  and  W.  C.  Funk.2  The  value 
of  crops  for  1909  is  reduced  by  the  amount  fed  to  live  stock  (com,  oats. 
barley,  hay,  and  forage,  kafir  com,  emmer,  and  spelt,  totalling  $2,786 
million)  except  the  amount  actually  sold  (8509  million)  and  corn  consumed 
by  the  family  ($40  million). 

The  values  of  house  rent,  and  of  food  and  fuel  consumed  are  based  on 
Mr.  Funk's  estimate,  which  was  made  up  by  visiting  and  going  over  the 
monetary  affairs  of  483  farmers  in  10  well  scattered  localities.  In  this  esti- 
mate, Mr.  Funk  arrived  at  a  total  figure  of  8421  per  family/5  but  since  the 
census  enumerators  are  believed  to  have  allowed  for  a  certain  portion  of 
pork  and  beef,  vegetables  and  fruits  consumed  by  the  farm  family  (esti- 
mated at  $161),  he  reduced  this  original  total  of  8421  per  family  to  $260. 

The  expenditures  are  mostly  based  on  census  returns:  8(551  million  for 
hired  labor,  $115  million  for  fertilizers,  $300  million  for  feed,  and  $840 

i Bulletin,  July  19,  1913,  The  Farmers'  Income,  by  W.  J.  Spillman,  Agriculturist,  Office  of 
Farm  Management. 

2  U.  S.  Department  of  Agriculture,  Farmers'  Bulletin  No.  (V-in.  December,  1914. 

3  The  Cornell  Bureau  of  Farm  Management  found  the  average  value  of  products  furnished 
by  692  farms  in  New  York  State  in  1919  to  be  $449.02.  This  figure  excludes  rent,  and  is 
thus  fairly  comparable  at  relative  prices  to  the  amount  used  in  the  text.  The  deduction 
for  duplicate  census  figuring  in  the  Cornell  investigation  is  about  l'o  per  cent,  which  leads 
to  the  belief  that  Funk's  deduction  for  duplication  is  ample. 


302 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


TABLE  24C 


INCOME  AND  EXPENDITURES  OF  THE  AVERAGE  FARMER  <* 

1909 


Items 

Total 

Per  farm 

Income: 

Value  of  crops  b 

Value  of  live  stock  products  c .  .                        

$3,250,359,348 
1,124,678,632 

1,833,151,031 

1,653,934,100 

$511 
177 

Value  of  animals  sold  and  animals  slaughtered  on 

farms .                               

288 

Value  of  house  rent  and  of  food  and  fuel  consumed  1  >y 
family  and  not  reported  by  Census  (estimated) 

260 

Gross  earnings  of  farm  and  farm  family 

$7,862,123,111 

$1,236 

Expenditures: d 

Labor,  fertilizers,  feed,  seed  (estimated),  threshing 
(estimated),  animals  purchased,  taxes  (estimated), 

and  miscellaneous 

Maintenance  charges  (buildings,  equipment,  machin- 
ery, etc.) 

$2,750,344,281 
505,979,322 

$    432 
80 

Total  Expenditures .  .                          

$3,256,323,603 

$512 

Net  earnings  of  farm  and  farm  family 

$4,605,799,508 
2,049,148,628 

$724 

Interest  at  5  per  cent  on  value  of  farm  property 

(earnings  of  farm) 

322 

Earnings  of  farm  family.  ...            

$2,556,650,880 

$402 

a  The  Farmer's  Income  by  E.  A.  Goldenwciser,  American  Economic  Review,  March, 
1916,  p.  42. 

b  Exclusive  of  crops  fed  to  live-stock  on  home  farms. 

c  Including  dairy  products  (except  milk  and  cream  consumed  on  the  farm)  poultry, 
honey  and  wax,  and  wool  and  mohair. 

d  Exclusive  of  value  of  unpaid  family  labor. 

million  for  animals  purchased.  In  addition,  seed  and  threshing  are  esti- 
mated at  $290  million,  taxes  and  maintenance  of  buildings  and  implements, 
and  miscellaneous  expenses  at  $1,061  million,  making  a  total  of  $3,256 
million  or  $512  per  farm.  No  elaborate  estimate  is  made  of  the  interest 
on  mortgages,  but  a  probable  amount  of  $34  per  farm  is  ventured  in  the 
text. 

If  the  proportions  which  Dr.  Goldenweiser  found  be  accepted  for  the 
moment,  and  applied  to  the  following  years,  and  due  allowance  be  made  for 
the  increase  in  the  total  number  of  farms  and  changes  in  prices  and  costs, 
then  the  approximation  to  incomes  of  farm  families  shown  in  Table  24D 
can  be  made. 

The  total  value  of  crops  (Column  I)  is  taken  from  the  annual  reports  of 
the  Department  of  Agriculture,  and  this  amount  has  been  reduced  to  60 


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304  THE  ESTIMATE  BY  INCOMES  RECEIVED 

per  cent  of  its  reported  value  (Column  II),  in  order  to  eliminate  that 
part  of  the  crop  which  was  fed  to  live  stock,  and  which,  therefore,  appears 
under  the  heading  "Value  of  Animals"  (Column  IV). 

The  value  of  animal  products  (Column  III)  is  reported  in  the  Census  of 
1909,  and  certain  items  included  have  been  reported  in  the  Census  of  1914 
and  the  advance  sheets  of  1919.  For  the  intercensal  years,  the  amounts 
have  been  supplied  by  the  Department  of  Agriculture.1  These  amounts, 
however,  do  not  check  closely  in  detail  with  the  Census  figures.  For  exam- 
ple, the  Department  figure  for  daily  products  in  1919  showed  an  increase 
of  360  per  cent  over  1909,  while  the  Census  figures  indicated  an  increase 
of  only  about  300  per  cent.  The  Department  of  Agriculture's  figure  for 
poultry  and  eggs  shows  an  increase  in  1919  over  1909  of  267  per  cent, 
whereas  the  advance  sheets  of  the  Census  indicate  an  increase  of  only 
about  200  or  210  per  cent.  Assuming  that  the  Census  figures  are  more 
accurate  than  the  estimates  of  the  Department  of  Agriculture,  which  are 
admittedly  rough,  it  has  been  concluded  from  these  indications  that  the 
Department's  figures  are  from  12  to  22  per  cent  too  high.  They  have 
accordingly  been  reduced  by  17  per  cent. 

The  amount  of  correction  to  be  applied  for  the  value  of  animals  is  dubi- 
ous (Column  IV).  Some  duplication  exists  in  the  valuation  of  animals, 
owing  to  re-sales  of  live  stock.  This  has  been  placed  rather  arbitrarily  at 
one-fourth  the  reported  value  of  animals,  an  amount  which  is  indicated  by 
unpublished  samples  available  in  the  Bureau  of  Farm  Economics.  Data 
on  this  head  were  collected  for  the  Census  of  1910,  but  some  doubt  was 
thrown  on  their  accuracy,  and  they  have  not  been  published. 

The  value  of  food,  fuel,  and  house  rent  (Column  VI)  is  based  on  the  orig- 
inal amount  of  $260  per  farm  taken  from  Dr.  Goldenweiser,  and  multi- 
plied by  an  index  number.2  This  series  is  made  up  of  the  Bureau  of 
Labor  Statistics  index  number  of  wholesale  prices  of  farm  products  and 
fuel,3  weighted  in  the  proportion  of  7  to  l.4  The  index  number  is  further 
adjusted  to  take  into  account  the  increase  in  the  number  of  farms. 

The  total  cost  of  production  (Column  VIII)  is  taken  from  Dr.  Golden- 
weiser's  estimate  for  1910  and  extended  over  later  years  by  an  index  num- 
ber constructed  as  follows:  The  figures  for  1911,  1912,  and  1913  are  mul- 
tiplied by  the  Bureau  of  Labor  Statistics'  index  number  for  wholesale 
prices,  and  by  the  variations  in  acreage.  For  1914  to  1918,  the  index  num- 
bers compiled  by  the  War  Industries  Board  in  its  History  of  Prices  during 
the  War  were  used  for  the  separate  items  of  expense,  i.  e.,  feed  and  forage, 
live  stock,  meats  and  fats,  and  fertilizers.    These  series  ceased  with  1918, 

1  Office  Table  No.  423,  Department  of  Agriculture. 

-  No  comparative  data  for  rents  of  farm  dwellings  are  available. 

3  Monthly  Labor  Review,  June,  1920,  p.  69. 

*  W.  C.  Funk,  Farmers'  Bulletin  No.  635,  p.  5. 


FARMERS'  INCOME  305 

and  the  1919  and  1920  amounts  are  arrived  at  by  applying  the  relative 
change  in  wholesale  prices  of  the  Bureau  of  Labor  Statistics.  An  index 
number  for  farm  labor  was  computed  from  the  quotations  of  the  Depart- 
ment of  Agriculture;  Miscellaneous  and  Maintenance,  Expenses,  Seed  and 
Threshing  were  multiplied  by  the  Bureau  of  Labor  Statistics  index  number 
of  wholesale  prices,  together  with  the  variations  in  acreage. 

The  total  amount  of  farm  mortgages  (Column  IX)  in  1910  was  reported 
at  SI, 726, 172,851, l  and  as  this  is  known  to  be  but  a  partial  return,  an  ap- 
proximation of  $2  billion  has  been  ventured.  Interest  is  estimated  at  6 
per  cent.  For  1919,  the  total  of  farm  mortgages  is  estimated  at 
$3,598,985,000,  by  James  B.  Morman,2  and  84  billion  is  used  as  a  round 
sum.    The  amounts  for  the  intervening  years  are  interpolated. 

The  amount  of  rent  paid  by  tenant  farmers  (Column  X)  is  found  by  the 
following  method:  840.9  billion  is  taken  as  the  value  of  all  farm  property  in 
1910. 3  Early  returns  of  the  Fourteenth  Census  indicate  that  the  corre- 
sponding amount  is  about  877.9  billion  in  1920.  The  amounts  for  inter- 
censal  years  have  then  been  interpolated.  The  proportion  of  farm  land 
worked  by  tenants  in  1910  was  273^  per  cent,  having  a  total  value  of 
about  $11  billion,4  and  this  proportion  was  continued  throughout.  Finally, 
the  income  of  this  land  which  goes  to  persons  outside  of  agriculture  was 
estimated  on  a  basis  of  5  per  cent  of  the  reported  value  of  the  lands 
worked  by  tenants  as  given  in  the  Census. 

§  24c.  Second  Method — Based  on  Average  Ratio  of  Expenses  to  Total 

Product 

An  unpublished  study  made  by  Professor  G.  P.  Scoville,  of  Cornell 
University,  covering  2,784  farms  in  eight  counties  in  New  York  State,  for 
the  years  1908  to  1918,  indicates  that  (a)  the  value  of  total  crops  raised  on 
farms  at  the  prices  for  which  crops  were  sold,  is  roughly  equal  to  (b)  the 
total  income  from  the  sale  of  crops  and  live  stock,  including  gains  and 
losses  in  live  stock  inventory,  and  to  (c)  the  total  gross  income,  including 
gain  or  loss  in  farm  capital  and  miscellaneous  returns.  The  exact  aver- 
ages for  these  three  items  are  respectively  81,744,  81,770,  and  si.ss<), 
giving  a  grand  average  of  $1,803.  The  average  cash  expenses  per  farm/' 
about  $930,6  were  somewhat  over  one-half  of  the  average  amount  <  >f  81  ,s< ).'». 

■  Census  1910,  Vol.  5,  p.  162,  Table  6. 

2  The  Place  of  Agriculture  in  Reconstruction,  p.  319. 

3  Abstract  of  the  Census,  1910,  p.  281. 

1  Abstract  of  the  Census,  1910,  p.  2S5,  shows  L'-'0, 000,000  acres  worked  by  tenants  as  against 
598,000,000  acres  by  owners. 

5  Does  not  include  unpaid  family  labor. 

6  This  relationship  of  expenses  to  gross  sales  is  corroborated  by  the  Statistics  of  Inc 
1917,  p.   10.     These  data  refer  to  business   incomes,  from  agriculture  and  animals,  which 
"represent  only  such  amounts  reported  by  individuals  as  were  derived  from  business  opera- 
tions and  do  not  necessarily  indicate  the  principal  occupations  of,  or  the  total  incomes  re- 
ported by,  the  persons  making  the  returns."     The  number  of  returns  is  251,838,  the  gross 


306  THE  ESTIMATE  BY  INCOMES  RECEIVED 

or  513^  per  cent.  If  a  generalization  of  farmers'  incomes  be  attempted  on 
this  basis,  then  the  net  income  is  in  each  case  slightly  less  than  one-half  of 
the  Department  of  Agriculture's  figures  for  gross  value  of  agricultural  pro- 
duction. The  data  collected  are  too  scattered  to  permit  of  any  generaliza- 
tion in  regard  to  variations  of  costs  during  any  particular  year  of  this 
period. 

That  this  relation  of  expenses  to  gross  wealth  produced  is  somewhat 
too  low  for  the  country  at  large  is  indicated  by  other  samples.  A  study 
of  500  farms  in  Sumter  County,  Georgia,  1  indicates  that  the  proportion 
of  farm  expenses  to  farm  receipts  on  a  cash  basis  ranges  from  55  to  65  per 
cent.  In  the  Indiana  area,  the  expenses  constitute  from  40  to  50  per  cent 
of  the  farm  receipts  not  including  the  farmer's  own  labor.1  A  pamphlet 
entitled  Farm  Business  in  New  Hampshire,-  shows  average" earnings  for 
303  farms  in  all  parts  of  the  State  to  be  $3,290,  and  the  average  expenses  to 
be  $1,968,  or  59  per  cent.  This,  however,  is  not  strictly  comparable  with 
Professor  Scoville's  estimate,  since  it  does  not  include  grain  fed  to  animals 
among  the  expenses. 

A  fair  result  will  presumably  be  reached  by  deducting  55  per  cent  of 
the  gross  value  produced  for  expenses. 

That  the  rise  in  costs  has  been  somewhat  less  in  proportion  than  the  rise 
in  the  value  of  product  is  indicated  by  the  following  table.  The  first 
column  is  a  statement  of  relative  costs  from  data  covering  185  farms  in 
Wisconsin,  Ohio,  and  Indiana  collected  by  the  United  States  Office  of 
Farm  Management.  The  second  column  is  a  similar  statement  of  relative 
costs  from  data  for  two  counties  in  Illinois,  as  ascertained  by  the  Depart- 
ment of  Farm  Organization  and  Management  of  the  University  of  Illi- 
nois. The  third  column  is  the  index  number  of  the  United  States  Bureau 
of  Labor  Statistics  for  prices  of  farm  products  in  cities.  Since  the  price  in 
cities  is  not  the  vital  consideration  with  the  farmer,  an  unweighted  index 
number  of  31  farm  products  on  the  farm  is  also  shown  in  Column  IV. 

We  may  therefore  conclude  that  the  results  found  by  taking  farm  expen- 
ses at  55  per  cent  of  the  Department  of  Agriculture's  estimate  of  wealth 
produced  on  farms  will  not  tend  to  be  relatively  high  for  the  latter  half  of 
the  decade  in  comparison  to  the  first  half.  This,  however,  will  not  hold 
true  in  all  sections  of  the  country,  for  prices  of  different  classes  of  product 
increased  in  different  ratios.  Conditions  in  different  parts  of  the  country 
vary  so  greatly  that  every  generalization  must  be  taken  with  a  grain  of 
salt. 

sales  are  $1,622,907,759,  the  business  expenses  are  $816,743,s()2,  and  the  net  income  is  $806,- 
163,957.  The  two  are  thus  approximately  equal,  bearing  out  the  relationship  in  so  far  as 
the  "total  income  from  the  sale  of  crops  and  live  stock"  is  concerned. 

J  Unpublished  data  of  the  Bureau  of  Farm  Economics. 

2  By  A.  B.  Genung,  Farm  Management  Demonstrator,  1920. 


S 


FARMERS'  INCOME 
TABLE  24E 


307 


RELATIVE  INCREASE  OF  FARM   EXPENSES  AND  PRICKS  OF  FARM 

PRODUCTS 


I 

II 

III 

IV 

Yeai 

Relative  cost 

of  farming  in 

Wisconsin,  Ohio 

and  Indiana  a 

Relative  cosl 

of  farming  in 

two  counties 

in  Illinois  6 

Index  number 
of  market 

pi  ices  of 
farm  producl 

Index  number 
of  prices  of 

fann  products 
on  farm  d 

1913 

1914 

100 
108 
111 
118 

148 
193 

100 
90 
95 

100 

120 
136 
142 

100 
103 
105 

122 

189 
220 
234 
218 

100 
105 

1915    

1916 

1917 

1918 

1919 

1920 

107 
128 

L95 

210 
213 

216 

a  Unpublished  data  of  the  U.  S.  Bureau  of  Farm  Management. 

t>  Figures  furnished  by  University  of  Illinois,  Department  of  Farm  Organization  and 
Management.  The  comparability  of  these  cost  figures  with  those  collected  by  the 
U.  S.  Department  of  Agriculture  has  been  questioned. 

c  Monthly  Labor  Review,  February,  1921,  p.  45,  U.  S.  Bureau  of  Labor  Statistics 
index  number. 

''These  data  were  supplied  by  Professor  G.  F.  Warren,  and  converted  into  index 
numbers. 

Application  of  the  method  suggested  yields  the  following  results  for  each 

year: 

TABLE  24F 


ESTIMATE  OF  FARMERS'  INCOMES 

(Based  on  45  per  cent  of  the  total  value  of  farm  production  reported  by  the 

Department  of  Agriculture) 

(Millions  of  Dollars) 


Year 

Total  value  of 
farm  production  " 

45  per  cent  of 
gross  total  value 

1910 

S  9,037 
8,S19 
9,343 
9,850 

9,895 
10.771 
13,406 
19,331 

22,479 
24,961 
19,856 

S  4.0<»7 
3,969 

1911 

1912 

1,204 
4,432 

1913 

1914 

4,453 

4,819 
6,033 
8,699 

10  lltl 

1915 

1916 

1917 

1918 

1919.  .  .  . 

11  232 

1920 

8,935 

«  Statistical  Abstract  of  U.  S.,  1919,  p.  is;;. 


:;ns 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


§  24d.  Third  Estimate — Based  on  Sample  Incomes 

A  third  method  of  attack  is  suggested  by  unpublished  data  collected  by 
the  Bureau  of  Farm  Economics,  covering  the  distribution  of  labor  income 
among  11,000  farms  in  widely  scattered  parts  of  the  country.  In  this 
study,  the  years  1910  to  1915  were  considered  to  represent  substantially 
uniform  conditions,  and  so  were  the  years  1916  to  1918.  Samples  from 
different  years  in  the  first  period  were  averaged  together,  and  so  also  were 
samples  from  different  years  in  the  second  period.  What  are  shown, 
therefore,  are  rough  averages  covering  these  respective  periods.  For  each 
period,  the  percentages  of  all  farms  studied  are  grouped  under  the  follow- 
ing income  ranges: 

TABLE  24G 
LABOR  INCOME  OF  FARMERS  a 


1910  to  1915 


Annual  labor 
income  in  dollars 


$0-$500 .  .  . 
500-1,000.  . 
1,000-1,500. 

1,500-2,000. 
2,000-2,500. 
2,500-3,000. 


3,000-4,000 .  . 
4,000-5,000 .  . 
5,000-10,000. 
Over  $10,000 . 


Negative  Income 

0-500 

500-1,000 

1,000-1,500 

1,500  and  over. 


Net  Labor  Income  of  All  Farmers 


Per  cent  of 
total  farmers 
receiving  in- 
come named 


36.5 
17.7 

7.4 

3.4 
15 
1.0 

1.0 

.3 
.4 
.0 


23.9 
4.7 
1.2 
1.0 


100.0 


Total  number 

in  each  income 

range  (based 

on  6,400,000 

farmers) 


2,336,000 

1,132,800 

473,600 

217,600 
96,000 
64,000 

64,000 
19,200 
25,600 


1,529,600 

300,800 

76,800 

64,000 


6,400,000 


Total  labor 
income 

(Millions  of 
dollars) 


$  584 
850 
592 

381 
216 
176 

224 

86 

192 


$3,301 

Less 

382 

226 

96 

96 


$800 


$2,501 


a  This  table  is  based  on  an  unpublished  distribution  of  11,000  farmers'  incomes  made 
by  the  U.  S.  Bureau  of  Farm  Economics.  "Labor  Income"  is  denned  as  the  amount 
of  income  remaining  after  deducting  all  expenses  including  a  5  per  cent  return  on  the 
estimated  invested  capital. 


X 


FARMERS'  INCOME 


309 


TABLE  24H 


LABOR  INCOME  OF  FARMERS 
1916  to  1918 


Annual  labor  income  in  dollars 


$0-$500 

500-1,000 

1,000-1,500 

1,500-2,000 

2,000-2,500 

2,500-3,000 

3,000-4,000 

4,000-5,000 

5,000-10,000 

Over  10,000 

Negative  Income 

0-500 

500-1,000 

1,000-1,500 

1,500  and  over.  . 


Net  Labor  Income  of  All  Farmers 


Per  cent  of 
total  fanners 
receiving  in- 
come named 


2s  li 
19.9 
10.9 

6.1 
4.6 
2.6 

3.1 
1.3 

1.8 
.8 


13.9 
4.1 
1.0 
1.3 


100.0 


Total  number 

in  each  income 

range  (based 

on  6,500,000 

farmers ) 


1,859,000 
1,293,500 

708,500 

396,500 

299,(101) 
169,000 

201,500 
84,500 

117,000 
52,000 


903,500 

266,500 

65,000 

84,500 


6,500,000 


Total  labor 
income 

Millions  of 
dollars) 


165 

970 
ssO 

694 
(17:-! 
165 

705 
380 

877 
520 


sti, (>:;.") 

Less 

226 

200 

81 

127 


S    634 


S6.001 


a  See  Note  a,  Table  24G. 


When  the  percentages  shown  in  each  income  group  are  applied  to  all  the 
farmers  in  the  country,  the  results  show  an  average  total  income  for  the 
years  1910  to  1915  of  $2y2  billion  and  for  the  years  1916  to  1918  of  $6 
billion. 

The  rental  value  of  land  owned  by  farmers,  which  is  deducted  by  the 
Bureau  of  Farm  Management  before  arriving  at  its  figure  for  labor  income, 
may  be  estimated  from  the  following  facts:  In  1910,  the  total  value  of 
farms  was  $40  billion  and  of  this  operators  owned  72^  per  cent ,  or  about 
$29  billion.1  Five  per  cent  of  this  amount  is  $1,450  million,  which  after 
deducting  $200  million  for  interest  on  mortgages,  leave-  $1,250  million, 
which  may  be  added  as  a  rough  total  to  the  1910  to  1915  estimate.    The 

1  It  seems  to  be  generally  true  that  the  most  valuable  farms  in  the  North  arc  worked  by 
tenants.  This,  however,  is  not  true  (if  farms  worked  by  negro  tenants  in  the  South.  The 
percentage  value  of  farms  will  not,  therefore,  coincide  exactly  with  the  percentage  <>f  acreage, 
though  the  amount  of  error  is  uncertain  on  account  of  the  variation  of  conditions  in  different 
parts  of  the  country. 


310 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


1916  to  1918  figure  would  be  somewhat  larger;  perhaps  $2  billion  would 
not  be  out  of  the  way.  The  estimate  of  the  value  of  farm  property  for 
1920  has  not  yet  been  published.1 

The  total  average  annual  farm  production  thus  arrived  at  is  therefore 
as  follows: 


Period 


1910  to  1915. 
1916  to  1918. 


Average  annual 
labor  income 


Average  annual 

income  from 

property 


Total  income 
of  farmers 


(Billions  of  dollars) 


82' 2 
6 


8 


§  24e.  Final  Estimate  of  Farmers'  Incomes 

When  the  three  estimates  are  placed  alongside  of  each  other,  they  are 
seen  to  be  fairly  comparable  in  general  trend.  In  order  to  compare  the 
results  of  the  first  and  second  methods  with  those  of  the  third  method,  the 
averages  of  the  corresponding  years  have  been  computed.  These  averages 
have  been  weighted  in  accordance  with  the  number  of  cases  taken  from 
each  year  in  arriving  at  the  results  shown  by  the  third  method.  The 
figures  obtained  by  the  three  methods  are  thus  made  strictly  comparable. 
It  will  be  seen  that  this  comparison  confirms  the  general  results  found  by 
the  first  and  second  methods.  All  three  methods  show  a  marked  rise  in 
monetary  incomes  between  the  periods  1910  to  1915  and  1916  to  1918. 

The  final  estimate  of  farmers'  incomes,  as  shown  in  Table,  24J,  is 
based  on  a  combination  of  the  results  arrived  at  by  the  three  methods. 
Where  there  is  a  considerable  discrepancy,  the  figures  found  by  the  first 
method  are  given  greater  weight.  In  addition,  from  $200  to  $300  million 
has  been  included  to  take  care  of  the  "outside  income"  which  many 
farmers  earn.  The  results  are  given  in  terms  of  billions  of  dollars,  for  they 
cannot  claim  to  be  more  than  a  careful  approximation. 

§  24f.  Comparison  with  Other  Estimates 

Mr.  W.  R.  Ingalls,2  arrives  at  $5,200  millions  for  farmers'  incomes  in 
1916,  but  he  has  deducted  $2,800  millions  for  farm  laborers,  a  figure  much 
larger  than  that  used  here.  If  the  estimate  for  farm  labor  be  added  to  the 
amount  found  as  income  of  farmers  in  1916,  our  result  is  about  $7,300 
millions  as  against  Mr.  Ingalls'  $8  billions.  It  is  believed  his  estimate  of 
expenses  other  than  cost  of  labor  paid  is  somewhat  too  low.    Mr.  W.  I. 

'It  has  since  been  placed  at  $77.9  billion  in  an  advance  bulletin  of  the  Census  of  1920. 
"-Labor,  the  Holder  of  the  Nation's  Wealth  and  Income,  New  York  Times  Annalist,  Septem- 
ber 13,  20,  and  27,  1920. 


S 


FARMERS'   INCOME 


311 


TABLE  241 


COMPARISON  OF  TOTAL  FARMERS'  INC(  >MES  AS  FOUND  BY  THE  THREE 

METHODS  EMPLOYED 


1910  to  1920 
(Billions  of  Dollars) 


I 

II 

III 

Year 

Fiist 
method  a 

Weighted 
average 

Second 

method  & 

Weighted 

average 

Third 
method  <= 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

$  3.772 
3.517 
3.770 
4.029 
4.020 
4.485 

5.758 

8.811 

10.407 

10.497 
6.931 

■ 

3.93 
•     7.69 

4.067 
3.969 
4.204 
4.432 
4.453 
4.849 

6.033 

8.699 

10.116 

11.232 

8.935 

1 

4.33 

■     7.72 

3.75 
8.00 

a  See  Table  24D.    Based  on  an  estimate  of  gross  income  and  expenses  of  farmers. 

b  See  Table  24F.  Based  on  deduction  of  expenses  (55  per  cent  of  total  produce) 
from  the  Department  of  Agriculture's  estimate  of  gross  wealth  produced  on  farms. 

cSee  Tables  24G  and  2411  and  text,  p.  310.  Based  on  11,000  samples  of  the  labor 
income  of  farmers  plus  property  income. 


TABLE  24J 


FINAL  ESTIMATE  OF  THE  TOTAL  INCOME  OF  FARMERS 

1910  to  1920 
(Billions  of  Dollars) 


1910. . 

S3 . 95 

1911 

3  70 

1912. . . 

4 .  00 

1913. , 

4 .  20 

191  1. 

4.20 

1915. , 

.  "4.70 

1916 

5.80 

1917.  .  . 

8.80 

1918 

10.45 

1919 

...  10 . 85 

1920 . 

7  20 

312 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


King's  estimate  for  1910  given  in  the  Wealth  and  Income  of  the  People  of 
I  'tiikd  States  1  was  $6,842  millions,  and  this  included  the  income  of  farm 
laborers.  Even  when  a  deduction  is  made  for  the  latter  item,  the  esti- 
mate appears  too  high,  and  Mr.  King's  recent  investigations,  aided  by 
more  complete  evidence,  lead  him  to  believe  that  the  amount  should  be 
reduced.  Mr.  H.  A.  Wallace  2  has  made  a  similar  computation,  based  on 
the  "ratio"  method.  This  computation  is  based  on  the  assumptions  that 
crops  are  sold  as  crops,  and  not  as  live  stock,  and  that  live  stock  is  taken 
into  consideration  solely  as  the  form  in  which  pasture  is  marketed.  These 
assumptions  make  his  results  somewhat  too  low.  But  his  relative  increase 
in  1917,  1918,  and  1919  is  somewhat  greater  than  ours,  though  the  general 
trend  of  his  figures  is  the  same.  He  generously  states  in  a  letter :  "I  have 
dug  into  this  matter  sufficiently  so  that  I  think  in  the  main  your  figures 
are  accurate."  The  annual  farmers'  income,  according  to  his  figures,  is  as 
follows: 


(Millions  of  Dollars) 


1909 
1910 
1911 
1912 


$3,570 
3,070 
3,140 
3,440 


1913. 
1914. 
1915. 
1916. 


$3,585 
3,600 
4,000 
5,700 


1917 
1918 
1919 
1920 


$9,210 
8,900 
9  400 
3,900 


§  24g.  Farmers  Having  Incomes  Over  and  Under  $2,000 

Finally,  how  many  farmers  had  incomes  over  and  under  $2,000,  and 
what  did  their  total  incomes  in  each  of  these  classes  amount  to?  These 
figures  must  be  found,  in  order  that  they  may  be  carried  back  to  complete 
the  estimates  of  Chapters  22  and  23. 

The  only  basis  for  drawing  the  $2,000  line  through  our  totals  is  a  sample 
for  1918  of  401  farmers'  incomes  furnished  by  Professor  G.  P.  Scoville  of 
the  New  York  State  College  of  Agriculture.  While  this  is  a  small  sample, 
it  is  the  only  one  that  was  found  which  gives  actual  income.  The  assump- 
tion implicit  is  not  that  these  farmers'  incomes  are  typical  of  the  entire 
country,  but  that  the  distribution  of  income  among  them  is  typical.  The 
average  income  of  these  401  farmers  in  1918  was  $1,481,  whereas  the  aver- 
age income  of  all  farmers  in  the  same  year  was  $1,625.  This  fact,  however, 
does  not  invalidate  the  hypothesis  that  the  distribution  shown  by  the 
sample  was  typical.  Such  comparisons  as  it  has  been  possible  to  make 
with  the  larger  number  of  11,000  labor  incomes,  shown  in  Tables  24G  and 
24H,  after  making  an  allowance  for  farm  income,  tend  to  justify  the  use 
of  this  distribution.    On  this  assumption,  the  probable  division  of  number 

i  Page  138. 

2  Agricultural  Prices,  pp.  57-61. 


1* 


FARMERS'  INCOME 


313 


of  farmers  and  amount  of  farmers'  incomes  by  the  82,000  line  for  each  year 
is  as  follows: 

TABLE  24K 

NUMBER  OF  FARMERS    HAVING  INCOMES  OVER  AND  UNDER  S2.000, 
AND  THE  TOTAL  AMOUNT  OF  THESE  INCOMES 


I 

II 

III 

IV 

V 

VI 

Year 

Total 

Over  $2,000 

Under  §2,000 

Number 
of  farmers 
(Thou- 
sands) 

Total 

income 

(Billions) 

Number 
of  farmers 
(Thou- 
sands) 

Amount 
of  income 
(Billions) 

Number 

of  farmers 
(Thou- 
sands) 

Amount 

of  income 

(Billions) 

1910 
1911 
1912 
1913 

1914 
1915 
1916 
1917 

1918 
1919 
1920 

6,362 
6,371 
6,380 
6,388 

6,396 
6,405 
6,414 
6,423 

6,432 
6,441 
6,450 

$  3.95 
3.70 
4.00 
4.20 

4.20 
4.70 
5.80 
8.80 

10.45 

10.85 

7.20 

111 

79 

111 

143 

144 

208 

448 

1,313 

1,861 

2,008 

804 

$   .258 
.182 
.262 
.340 

.340 

.516 

1.179 

3.886 

5.784 
6.298 
2.261 

6,251 
6,292 

6,269 
6,245 

6,252 

6.197 
5,966 
5,110 

4,571 
4,433 

5,646 

$3,692 
3.518 
3.738 
3.860 

3.860 
4.184 
4.621 
4.914 

4.666 
4 .  552 
4.939 

CHAPTER  25 

CORPORATE  SURPLUS 

§  25a.  Definition  of  Corporate  Surplus 

Corporations  do  not  generally  pay  out  their  entire  earnings  to  their 
stockholders.  Even  after  reserves  for  losses,  depreciation,  insurance,  etc., 
have  been  made,  it  is  still  true  that  earnings  ought  to  be  in  general 
greater  than  dividends.  The  excess  of  earnings  over  dividends  after 
specific  reserves  have  been  set  aside  constitutes  corporation  surplus. 
Such  retained  earnings  are  generally  put  back  into  the  business,  though 
they  may  be  invested  otherwise.1 

§  25b.  The  Propriety  of  Counting  Surplus  as  Part  of  the  National  Income 

Should  these  corporation  surpluses  be  included  as  part  of  the  National 
Income?  It  must  be  remembered  that  these  surpluses  are  computed  after 
the  deduction  of  reserves  for  depreciation,  taxes,  bad  debts,  insurance  and 
a  variety  of  ascertained  losses.  To  the  corporations  they  are  therefore  a 
book  income,  and  normally  are  used  to  ensure  regularity  in  payment  of 
dividends  and  for  an  expansion  of  their  business. 

In  the  accounting  practice  of  corporations,  surplus  may  be  used  for 
scaling  down  the  value  of  intangible  assets,  for  conversion  into  stock  which 
is  distributed  in  the  form  of  dividends,  or  it  may  simply  be  continued  as 
a  surplus  account.-  Indeed,  it  might  be  possible  to  distribute  the  entire 
earnings  of  a  corporation  and  finance  expansion  by  means  of  new  stock 
issues.  But  the  trend  of  American  business  policy  is  towards  the  main- 
tenance of  dividends  in  years  of  low  profits  as  well  as  high.3  This  attempt 
at  maintenance  of  dividends  demands  a  conservative  policy  in  years  of 
high  profits  and  a  daring  distribution  of  cash  in  the  lean  years.  Such  a 
policy  can  be  maintained,  therefore,  only  when  there  is  in  good  years  a 

1  The  distinction  between  dividends  and  surplus  is  not  necessary  in  treating  private  busi- 
ness and  partnerships,  for  in  the  income-tax  returns  used  here  the  entire  earnings  are  in- 
cludi  d  in  the  incomes  of  the  individuals  owning  the  business. 

2  The  Income  Tax  decision  in  McCombe  v.  Eisner  (252  U.  S.  189),  involved  the  question 
whether  a  stock  dividend  should  be  considered  income.  The  basic  assumption  was  that  a 
corporation  was  an  entity,  and  therefore  the  definition  of  income  hinged  on  the  legal  separation 
of  its  assets  and  their  ownership  by  individuals.  From  an  economic  point  of  view,  income 
must  be  considered  as  far  as  possible  to  accrue  at  the  time  of  its  receipt  by  the  party  earning 
it — either  corporation  or  individual.  Owing  to  the  form  in  which  most  of  the  data  are  pre- 
sented, income  is  regarded  as  accruing  only  when  it  is  received  by  the  individual,  but  the 
fact  thai  so  much  of  our  business  enterprise  is  in  corporate  form  makes  it  necessary  to  recog- 
nize corporate  surplus  as  a  separate  item. 

0  English  practice  tends  towards  a  larger  and  more  varying  distribution  of  corporate  earn- 
ings in  the  form  of  dividends. 

314 


CORPORATE  SURPLUS  315 

considerable  margin  between  earnings  and  dividends.  In  many  cases 
dividends  in  lean  years  are  paid  wholly  or  partly  out  of  surplus,  which 
is  the  first  shock-absorber  (after  reserves)  of  business  adversity.  The 
fact  that  dividends  and  other  losses  are  taken  out  of  surplus  in  years  of 
depression  means  that  this  surplus  was  actually  earned  in  years  of  pros- 
perity. An  accurate  accounting  of  the  National  Income  year  by  year 
should  bring  out  these  real  variations  in  corporate  earnings.  To  take  no 
cognizance  of  their  rise  and  fall  would  create  a  false  impression  of  the  uni- 
formity of  income  over  years  of  depression  and  years  of  expansion. 

During  the  years  1920  and  1921,  we  have  seen  in  many  corporations 
not  only  a  lack  of  surplus  but  even  a  deficit  which  wiped  out  a  part,  or 
more  than  all,  of  the  surplus  accumulated  in  previous  years.  This  devel- 
opment, however,  does  not  mean  that  the  surplus  had  not  been  real  income 
in  the  years  in  which  it  was  gathered.  On  the  contrary,  the  later  loss  con- 
firms the  reality  of  the  surplus  accumulated  in  preceding  years.  Clearly 
an  accurate  statement  of  the  National  Income  year  by  year  should  take 
into  consideration  both  the  surpluses  of  prosperous  years  and  the  deficits 
of  periods  of  depression.  It  might  well  happen  that  the  accounting  of 
"corporate  surplus"  in  any  year  might  yield  a  net  "corporate  deficit." 

§  25c.  The  Genuineness  of  Reported  Surplus  Accounts 

In  some  form,  then,  corporate  surplus  constitutes  an  element  in  the 
National  Income.  Whether  it  should  be  considered  on  an  equal  footing 
with  the  income  actually  distributed  as  dividends  to  individuals,  or 
whether  it  should  be  shown  as  contingent  income,  is  another  question. 
If  it  were  the  general  practice  of  corporations  to  carry  adequate  *  reserves 
and  if  the  entire  net  income  were  normally  distributed  as  dividends,  then 
there  could  be  no  question  that  the  entire  net  incomes  of  corporations 
(including  what  is  now  generally  carried  as  surplus)  should  be  counted  on 
the  same  basis  as  all  other  income.  If,  however,  the  general  reserves  of 
corporations  are  normally  insufficient,  and  if  surpluses  are  wholly  or  mainly 
absorbed  in  meeting  unforeseen  business  losses,  then  they  too  should  be 
treated  as  reserve,  or  at  least  contingent  income,  subject  to  later  disposal. 
They  could  not  be  treated  as  actual  income  until  the  business  situation 
had  so  developed  as  to  make  possible  an  approximation  of  the  extent  of 
these  losses.2 

This  brings  up  the  question  whether  the  surplus  accounts  of  corpora- 
tions represent  a  true  increase  of  assets  or  merely  a  reserve  account  against 

■It  is  assumed  that  reserves  are  rarely  too  lar^c  to  meet  current  losses.  Any  excess  of 
reserves  above  current  losses  manifestly  makes  the  surplus  as  reported  too  small  by  a  like 
amount. 

Broadly,  the  reserves  of  corporations  are  at  least  as  adequate  as  those  of  individuals  and 
partnerships  engaged  in  business.  Incidentally,  I  do  not  think  sufficient  weight  has  been 
given  to  the  net  losses,  or  negative  income  of  the  latter.     J.  E.  Sterrett. 


31G  THE  ESTIMATE  BY  INCOMES  RECEIVED 

unexpected  losses.1  Individual  examples  of  both  kinds  are  common,  and 
extraordinary  changes  in  the  price  level  further  complicate  the  problem 
of  bookkeeping  values.  If  it  could  be  shown  that  physical  production  did 
or  did  not  normally  increase  with  the  increase  of  invested  capital  through 
the  growth  of  the  surplus  account,  the  problem  whether  the  surplus  account 
represented  an  increase  of  assets  or  a  reserve  which  is  normally  wiped  out 
by  losses  could  be  answered.  But  the  measurement  of  physical  produc- 
tion presents  the  difficulty  that  very  few  business  enterprises  turn  out  a 
single  standardized  article  over  a  series  of  years.  One  must  therefore  turn 
to  the  money  value  of  the  product,  remembering  however  (a)  that  changes 
in  money  value  do  not  represent  changes  in  physical  production  during  a 
period  of  price  change,  and  (b)  that  money  value  is  apt  to  misrepresent 
physical  product  if  new  assets  are  put  into  labor-saving  devices.  In  the 
latter  case  it  often  happens  that  while  the  total  product  is  not  increased, 
the  labor  cost  is  decreased  and  the  profit  increased. 

If  surplus  is  correctly  reported,  an  increase  in  surplus  should  lead  to  a 
corresponding  increase  in  physical  production  after  these  two  factors  have 
been  allowed  for.  However,  the  increase  in  physical  production  should 
not  be  in  proportion  to  the  increase  in  surplus  but  in  proportion  to  the  in- 
crease in  capital  plus  surplus.  In  other  words,  if  surplus  be  bona  fide,  its 
effects  upon  production,  when  it  is  put  into  the  business,  should  be  similar 
to  the  effects  of  new  capital. 

The  question  then  is,  whether  physical  productivity  tends  to  vary  di- 
rectly as  the  capital  plus  surplus  shown  on  the  books.  An  attempt  has  been 
made  to  answer  this  question.  The  corporations  whose  capital  plus  sur- 
plus and  physical  productivity  were  examined  included  all  for  which  com- 
parable statistics  were  obtainable  during  the  whole  period  chosen  for 
investigation.  The  years  1905  to  1914  were  chosen  for  several  reasons, 
one  of  the  most  important  of  which  was  that  no  violent  price  movements 
occurred. 

The  method  used  was  to  break  the  decade  into  two  five-year  periods, 
1905  to  1909  and  1910  to  1914,  and  then  compare  changes  in  capital  plus 
surplus  from  the  average  of  the  first  five-year  period  to  the  average  of  the 
second  five-year  period,  with  corresponding  changes  in  physical  produc- 
tion from  the  first  period  to  the  second. 

1  It  is  suggested  that  the  real  question  is  not  whether  surpluses  are  used  as  reserves  or  to 
expand  the  business  or  for  some  other  purpose,  but  whether  the  inventories  at  the  different 
dates  correspond  to  actual  market  values  or  are  merely  fictitious  figures.  There  is  no  known 
way  of  testing  this  correspondence  other  than  to  take  a  broad  view  of  the  actual  results  of 
business  operations  over  a  period  of  years.  To  attain  such  a  view  is  the  aim  of  the  following 
discussion. 

With  the  conclusions  drawn  here  compare  the  evidence  adduced  by  Dr.  David  Friday 
(Profits,  Wages,  and  Prices,  p.  63)  from  a  group  of  4,508  corporations  which  were  listed  in 
Corporate  Earnings  and  Government  Revenues,  Senate  Document  No.  259,  65th  Congress,  2nd 
Session.  His  compilations  show  that  their  invested  capital  was  182  per  cent  of  their  capital 
stock. 


CORPORATE  SURPLUS  317 

Physical  productivity  not  being  directly  measureable,  money  indices 
were  used.  The  disturbing  effect  of  price  movements  would  seem  to  be 
small  in  this  period.  Average  prices  of  1910  to  191  t  were  about  9  per  cenl 
above  the  average  of  1905  to  1909.1 

The  money  indices  of  physical  production  used  were  net  earnings,  gross 
earnings,  net  profits,  total  sales. 

The  corporations  and  the  two  variables  examined  in  each  case  are  as 
follows : — 2 

1.  Twenty-five  public  utilities,  (a)  capital  plus  surplus  and  (b)  net 
earnings. 

2.  Twenty-six  public  utilities,  (a)  capital  plus  surplus  and  (b)  gross 
earnings. 

3.  Twenty-four  industrial  companies,  (a)  capital  plus  surplus  and  (b) 
net  profits. 

4.  Fifteen  industrial  companies,  (a)  capital  plus  surplus  and  (b)  total 
sales. 

5.  Thirty-nine  industrial  companies,  (a)  capital  plus  surplus  and  (b) 
net  profits. 

In  each  case  a  straight  line  was  fitted  to  the  widely-scattered  points 
representing  the  two  variables  in  the  case  of  each  company  by  the  method 
of  least  squares,  and  the  results  are  shown  in  the  following  diagram.  If 
the  volume  of  business  had  increased  in  exactly  the  same  ratio  as  capital 
plus  surplus,  then  on  these  diagrams  the  straight  lines  fitted  to  the  points 
would  all  have  an  inclination  of  45  degrees.  To  show  how  nearly  the  plot- 
ted lines  correspond  to  this  condition,  a  dotted  45  degree  line  has  been 
inserted  in  the  diagrams. 

Though  no  single  example  can  be  considered  conclusive,  the  grouping  of 
all  the  lines  around  the  45  degree  line  indicates  a  close  relation  between  the 
growth  of  assets  through  reinvested  surplus  and  the  growth  of  production. 

A  further  test  is  suggested  by  the  Census  figures  for  primary  horse- 
power and  capital  used  in  manufacturing.  The  data  are  for  the  years 
1904  and  1914.3  Both  figures,  especially  the1  amounts  for  capital,  are  faulty, 
and  too  great  reliance  should  not  be  placed  on  them.  Yet  they  suggest  a 
close  relation  between  the  growth  of  capital  (including  surplus)  and  the 
growth  of  productive  power.  Moreover,  the  index  of  productive  power  is 
in  this  case  not  monetary.4 

1  Bulletin  of  U.  S.  Bureau  of  Labor  Statistics,  No.  181,  p.  16. 

2  These  samples  were  taken  from  the  reports  in  Moody's  Manual  and  supplemented  by 
the  corporate  records  furnished  by  two  large  banks.  There  is  some  overlapping  of  samples, 
especially  between  items  1  and  2,  anil  .'5  and   1 

3  The  191!)  figures  are  not  yet  available,  and  when  they  do  become  available  will  be  af- 
fected by  price  flueutations  in  such  degree  as  to  make  them  of  little  value  for  the  present 
purpose. 

4  The  question  is  raised  whether  horsepower  can  be  taken  as  a  constant  factor  for  purposes 
of  this  computation  during  the  period  covered.  If  the  value  product  per  horsepower  remained 
constant,  then  it  is  a  good  criterion. 


,318 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


80 


70 


60" 


o 

O 


I 

o 


O 

o 


50 


40- 


30 


20 


6 


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CHART    25  A 

RELATIVE  CHANGES   IN  PRODUCT 
CORRESPONDING  TO   RELATIVE 
CHANGES   IN   INVESTED  CAPITAL 
(Different  Samples  measured 
by  Different  Criteria) 


..—THEORETICAL  LINE  -  45  DEGREES 

(l)  PUBLIC  UTILITIES.  Invested  Capital  and 
Grosa  Earnings,  ly  »  l.OtixJ 

(2)  INDUSTRIALS.  Invested  Capital  and 
Bef  Profits. Ty  =  l.Ofax) 

(3)  PUBLIC  UTILITIES.  Invested  Capital  and 
Net  Earnings,  ly  s  l«05x) 

(4)  INDUSTRIALS.  Invested  Capital  and 
Net  Profits,  ly  =  ,?Vx) 

(5)  INDUSTRIALS.  Invested  Capital  and 
Total  Sales,  (y  =  .?0x) 


10  20  30  40  50  60  70 

Percentage  Inorease  of  Capital  for  1910-14  over  1905-09. 


80 


The  figures  for  1904  were  reduced  to  a  basis  of  100,  and  the  relative 
increases  or  decreases  for  1914  have  been  plotted.  These  relations  repre- 
sent data  from  24  industries  (including  19,279  establishments)  and  seem 
typical  of  the  whole.  The  equation  of  the  least  square  straight  line 
through  the  origin  is  y  =  .842  x.  Here  capital  values  are  growing  at  a 
slightly  higher  rate  than  the  productive  powers  which  they  represent. 
If  the  relation  were  such  that  horsepower  varied  directly  as  capital 
plus  surplus,  the  equation  would  become  y=x. 

The  straight  line  fitted  to  the  data  of  the  accompanying  chart  comes 
much  closer  to  the  theoretical  line  y  =  x,  if  an  adjustment  is  made  in  capi- 
tal plus  surplus  to  offset  the  rise  in  prices  from  1904  to  1914. x  Though  such 
adjustment  for  the  complete  change  in  prices  undoubtedly  is  too  great, 
owing  to  the  fact  that  the  rise  in  investment  prices  was  not  as  rapid  as  that 

■  Bulletin  No.  226,  U.  S.  Bureau  of  Labor  Statistics,  p.  28. 


S 


CORPORATE  SURPLUS 


319 


200 


o 


u 

o 


100- 


60 

-t-> 

s 

V 

o 


CHART    25  B 

RELATIVE  CHANGES   IN  PRIMARY  HORSEPOWER 
CORRESPONDING   TO  RELATIVE  CHANGES   IN 
INVESTED  CAPITAL. 

(24   INDUSTRIES). 


THEORETICAL  LINE  45      (y  s  x) 

(1)    STRAIGHT  LINE  FITTED  TO  DATA  (y  z    .842x) 

(2)    STRAIGHT  LINE  FITTED  TO  DATA  AFTER  ADJUST- 
MENT FOR  PRICE  CHANGES. (y  ;    . ?62x) 


1 
100 


200 


Percentage  Increase  In  Capital  plus  Surplus  for  1914  over  1904. 


in  the  index  used — namely,  wholesale  prices,  there  is  no  doubt  that 
some  adjustment  is  needed.  The  true  relation  lies  between  the  two 
lines. 

While  these  results  may  be  tentatively  accepted  for  the  pre-war 
period,  the  further  question  is  raised  as  to  their  validity  since  1914. 
Are  we  to  include  the  large  surplus  accounts  of  recent  years  in  the 
National  Income? 

Several  considerations  must  be  taken  into  account: 

(1)  The  rise  in  prices  which  brought  about  a  lessened  physical  product 
per  dollar  for  the  invested  surpluses  of  these  later  years. 

(2)  The  increased  replacement  value  of  fixed  capital  assets  and  inven- 
tories. 

(3)  The  increased  demand  for  certain  products  during  the  war.  which 
demand  fell  off  after  its  close. 


320  THE  ESTIMATE  BY  INCOMES  RECEIVED 

(4)  The  increased  income  and  excess  profits  taxes. 

These  considerations  affect  our  attitude  toward  the  bookkeeping  meth- 
ods employed.  The  actual  amounts  of  expenses,  reserves,  surplus,  and 
dividends  shown  in  the  books  are  subject  to  wide  variation  according  to 
the  judgment  of  accountants  and  business  men.  It  follows  from  the  pre- 
ceding argument  that  prior  to  1914,  the  reserves  set  up  against  specific 
uncertainties  were  normally  sufficient  to  cover  the  greater  part  of  the  un- 
foreseen losses  which  occurred  in  business,  since  in  a  broad  sense  the  sur- 
plus financed  a  roughly  proportionate  increase  in  the  volume  of  new  busi- 
ness transacted. 

Did  American  business  men,  operating  under  the  stress  of  all  the  forces 
of  uncertainty  after  1914,  abandon  their  conservative  policy  of  deducting 
reserves  adequate  to  cover  current  losses  and  carry  as  surplus  that  which 
should  really  be  considered  a  reserve  account?  The  answer  to  this  ques- 
tion cannot  be  found  by  mathematical  treatment.  The  items  are  too 
complex  and  interwoven  to  permit  of  separation.  There  were,  during  1920, 
many  striking  cases  of  writing  off  of  surplus  accounts  owing  to  the  unfore- 
seen large  depreciation  in  values;  but  as  already  said,  that  fact  does  not 
invalidate  the  genuineness  of  the  surpluses  during  the  years  when  they 
were  accumulated.  On  the  other  hand,  there  have  been  a  large  number  of 
instances  of  stock  dividends,  which  converted  the  surplus  account  into  a 
capital  account.  These  conversions  suggest  that  the  two  accounts  are 
generically  similar  and  capable  of  being  interchanged. 

When  the  enormous  deterrent  to  the  writing  up  of  profits  interposed  by 
high  taxes  is  considered,  the  burden  of  proof  seems  to  lie  upon  those  who 
would  consider  the  reported  surplus  as  fictitious  at  the  time  it  is  earned. 
That  there  have  been  certain  unfortunate  investments  is  clear,  but  the 
strength  which  has  been  shown  by  many  corporations  during  the  recent 
depression  bears  testimony  to  the  general  adequacy  of  reserve  accounts. 
Moreover,  capital  values  were  not  generally  written  up  during  the  war 
owing  to  the  higher  replacement  costs.  In  old  enterprises  inflated  costs 
only  affected  new  investments  and  inventories.  The  losses  which  were 
taken  in  1921  by  many  corporations  were  commonly  taken  care  of  in  the 
balance  sheet  by  reducing  surplus.  This  situation  should  be  shown  in  the 
figures,  when  they  are  available,  for  that  year. 

Opinions  regarding  the  adequacy  of  reserves  are  affected  in  large  meas- 
ure by  personal  environment.  The  experiences  of  individuals  with  those 
concerns  about  which  they  have  special  information  influence  their  judg- 
ment in  making  wider  generalizations,  and  individual  experiences 
vary.  After  consultations  with  a  number  of  men,  whose  positions  are 
such  as  to  give  them  a  broad  view  of  business  policies,  the  conclusion 
has  been  reached   that   between  80  and  90  per   cent  of   the  reported 


CORPORATE  SURPLUS  321 

surplus  constitutes  a  genuine  saving,  and  hence  is  a  part  of  the  National 
Income.1,2 

§  25d.  The  Data 

The  Bureau  of  Internal  Revenue  reports  the  total  net  earnings  of  cor- 
porations in  the  volumes  entitled  Statistics  of  Income  for  the  years  1916, 
1917,  and  1918.  For  the  years  1909  to  1913  total  earnings  are  given  in  the 
annual  reports  of  the  Commissioner  of  Internal  Revenue.  For  the  years 
1914  and  1915  they  are  not  given  but  may  be  estimated  from  the  amount 
of  the  tax. 

These  data,  however,  are  not  comparable  without  adjustments.  During 
the  period  1909  to  1912,  corporations  paid  taxes  only  on  their  actual  earn- 
ings, not  including  such  sums  as  they  received  from  stock  ownership  in 
other  corporations.  This  practice  was  changed  in  the  period  1913  to  1917, 
when  the  tax  was  collected  on  all  the  net  income  of  a  corporation  from 
whatever  source  it  might  come.  In  1918  there  was  a  reversion  to  the 
earlier  practice. 

This  change  in  practice,  however,  has  made  little  apparent  difference 
in  the  results.  The  percentage  changes  from  year  to  year  in  the  earnings 
of  all  corporations  have  been  compared  with  the  percentage  changes  of  the 
earnings  of  the  205  sample  corporations  quoted  elsewhere  3  and  with  the 
251  corporations  for  which  data  were  collected  by  Professor  Friday. '  In 
both  these  samples,  earnings  are  estimated  from  year  to  year  on  a  strictly 
comparable  basis.  There  is  found  to  be  no  constant  divergence  from  the 
earnings  of  all  corporations  on  which  to  base  a  correction  for  the  change 
in  method  of  computing  taxes.  In  1913,  compared  with  1912,  the  net 
earnings  of  all  corporations  reported  by  the  Bureau  of  Internal  Revenue 
increased  13  per  cent,  the  net  earnings  of  the  sample  of  205  corporations 
increased  9  per  cent,  and  the  sample  of  251  corporations  increased 
6  per  cent.  In  1914  the  decreases  from  1912  in  the  three  sets  of  data 
were  respectively  23  per  cent,  18  per  cent,  and  19  per  cent.     In  1915 

*In  my  paper  in  the  Annalist  (September  20,  1920),  I  expressed  dissent  from  the  hypothesis 
that  corporate  surplus  is  wholly  income  and  urged  that  what  concerns  us  in  the  study  of  the 
division  of  income  is  simply  what  is  actually  paid  in  dividends. 

Without  any  doubt  corporate  surplus  is  in  part  utilized  for  additions  to  plant,  but  in  part 
it  disappears,  as  experience  has  shown,  simply  in  the  maintenance  of  plant.  Since  the  be- 
ginning of  the  war  a  large  part  of  the  corporate  surplus  went  into  the  provision  of  new  plant 
as  a  war  measure,  which  plant  must  be  thrown  away  and  written  off.  During  the  war  we 
deluded  ourselves  with  the  idea  that  corporations  were  accumulating  great  surpluses  that 
were  going  to  enable  them  to  maintain  their  dividends  indefinitely,  but  at  the  present  time 
that  illusion  is  being  dispelled.     W.  It.  Ingalls. 

2  This  is  doubtless  true  of  ordinary  times.  The  war  period  is  another  story.  The  tendency 
throughout  was  to  under  rather  than  to  overstate  profits.  The  tax  laws  saw  to  that.  The 
tax  laws  did  not  allow  reserves  for  future  losses  and  conservative  business  judgment  did  not 
anticipate  a  drop  in  price  levels  helow,  say,  that  of  1914.  Now,  however,  we  have  seen  some 
commodities  crash  down  below  the  1N00  level, — hides,  notably.     .1.  E.  Sterrett. 

3  See  Table  25  A,  note  d. 

*  David  Friday,  Profits,  Wages  and  Prices,  p.  17. 


322  THE  ESTIMATE  BY  INCOMES  RECEIVED 

the  increases  over  1912  were  respectively  28  per  cent,  52  per  cent,  and 
36  per  cent.  In  1916  the  new  influence  on  bookkeeping  methods  exerted 
by  the  increase  of  the  corporate  tax  rate  to  2  per  cent  renders  close  com- 
parisons with  earlier  years  hazardous.  As  between  the  1917  and  1918 
data,  when  the  method  of  computing  corporate  earnings  was  changed 
again,  the  Internal  Revenue  figures  for  earnings  fell  about  22  per  cent,  as 
against  a  fall  in  the  two  samples  of  24  per  cent  and  10  per  cent. 

These  comparisons  lead  one  to  believe  that  the  inclusion  or  exclusion  of 
intercorporate  dividends  was  not  a  factor  of  major  importance  in  net  earn- 
ings. Other  forces  outweighed  it  to  such  an  extent  that  its  effect  cannot 
be  ascertained  from  the  available  data. 

Further,  during  the  period  1909  to  1912,  corporations  having  an  income 
of  less  than  $5,000  per  year  were  exempted  from  the  tax.  The  removal  of 
this  exemption  in  1913  caused  an  increase  in  number  of  corporations  pay- 
ing taxes,  of  about  125,000.  From  this  increase  the  probable  earnings 
of  such  corporations  in  the  earlier  years  may  be  roughly  approximated. 

Another  complication  is  that  each  year  back  taxes  have  been  collected 
after  a  field  inspection  of  the  books  of  selected  corporations.  The  assess- 
ment of  these  taxes  indicates  a  considerable  degree  of  under-reporting  of 
income,  even  in  the  years  prior  to  1916,  when  the  tax  rate  was  only  1  per 
cent.  Back  taxes  as  high  as  $3  to  $4  million  were  assessed  for  each  year, 
indicating  an  income  of  as  many  hundreds  of  millions  or  about  10  per 
cent  of  the  reported  total.  Even  these  field  inspections  are  reported  to 
have  been  far  from  complete,  owing  to  an  inadequate  staff. 

The  final  amounts  of  corporate  income  estimated  for  each  year  are 
shown  in  Column  I  of  Table  25 A.1  An  independent  check  of  the  amounts 
reported  in  back  taxes  in  the  annual  reports  of  the  Commissioner  of  In- 
ternal Revenue  2  approximately  verified  these  totals. 

A  classification  of  corporate  earnings  into  financial,  commercial,  manu- 
facturing, mining,  public  utility  and  railroad  earnings  has  been  given  at 
various  times  in  the  annual  reports  of  the  Commissioner  of  Internal  Rev- 
enue and  in  the  Statistics  of  Income,  and  an  effort  has  been  made  to  com- 
plete these  classifications.  But  so  many  discrepancies  have  been  found 
in  the  amounts  reported  that  a  presentation  of  this  material  as  if  it  were 
comparable  would  be  misleading.  The  attempt,  therefore,  to  show  in 
detail  the  annual  variations  in  the  earnings  of  different  classes  of  corpora- 
tions has  been  given  up. 

From  the  reported  net  income  are  deducted  taxes  and  deficits;  these 
are,  for  the  most  part,  exact  amounts.  Thereafter,  an  adjustment  is 
made  for  known  discrepancies  in  the  reported  net  earnings,  and  these 

»  Statistics  of  Income  for  1916,  p.  15;  for  1917  and  1918. 

2  Commissioner  of  Internal  Revenue,  Annual  Rcjiort,  1913,  p.  505;  1914,  p.  624;  1915, 
p.  746;  L916,  p.  661;  1917,  p.  773. 


CORPORATE  SURPLUS  323 

amounts  are  then  divided  between  dividends  and  surplus.  This  division 
is  made  in  accordance  with  the  results  of  a  study  of  205  industrial  corpora- 
tions, 15  commercial  corporations,  62  public  utility  corporations,  the  bank- 
ing reports  of  the  Comptroller  of  the  Currency,  and  the  railroad  reports 
of  the  Interstate  Commerce  Commission.1  The  division  between  divi- 
dends and  surplus  as  found  in  each  of  these  samples  has  been  weighted  in 
accordance  with  the  relative  amounts  of  the  net  earnings,  and  a  weighted 
average  for  each  year  has  been  applied  to  the  estimated  total  earnings. 
The  results  of  these  computations  are  presented  in  the  following  table: — 

1  See  footnotes,  Table  25A,  for  detailed  references. 


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CORPORATE  SURPLUS 


325 


a  Statistics  of  Income,  1916,  p.  15.  Originally  reported  in  the  Annual  Reports  of 
Commissioner  of  Internal  Revenue,  1911,  pp.  70-80,  1912,  pp.  74-S5,  1913,  pp.  91-102, 
1914,  pp.  98-109.  These  figures  cover  the  years  1910,  1911,  1912  and  1913.  For  191  1 
and  1915,  there  are  no  data.  The  totals  are  based  on  the  amount  of  the  tax,  1915, 
pp.  188,  189,  1916,  pp.  204,  205. 

The  years  1909,  1910,  1911  and  1912  an;  obtained  from  data  collected  under  the 
excise  tax,  section  38  of  the  Act  of  August  5,  1909.  This  Acl  permitted  the  deduction 
of  income  received  as  dividends  from  other  corporations,  and  also  excluded  income  of 
less  than  $5,000.  The  amounts  for  1913  to  1917  are  obtained  from  data  collected  under 
the  income-tax  law  of  October  3,  1913,  and  subsequent  income-tax  laws,  and  included 
all  income  of  corporations,  including  specifically  income  received  as  dividends  from 
other  corporations.  The  income-tax  law  for  1918  again  permitted  the  deduction  of 
income  received  as  dividends  from  other  corporations. 

The  tax  rate  was  increased  in  1916  from  1  per  cent  to  2  per  cent.  (Act  of  September  X, 
1916.)  For  the  year  1917,  the  rate  was  again  increased  (War  Revenue  Act  of  <  >ctober  3, 
1917)  to  a  normal  tax  of  4  per  cent,  plus  war  excess-profits  taxes.  For  1917,  see  Statis- 
tics of  Income,  1917;  for  1918,  see  Statistics  of  Income,  1918;  for  1919,  see  Statistics  of 
Income,  1919. 

b  For  the  years  1916  to  1918,  losses  are  reported  in  Statistics  of  Income.  Prior  to 
1916  no  such  figures  are  given.  A  deduction  for  losses  in  the  years  prior  to  1916  should 
therefore  be  made.  A  comparison  of  the  deficits  reported  in  1916  and  1917  with  the 
amounts  of  liabilities  of  enterprises  that  failed,  reported  in  Dun's  Review,  suggests  that 
the  liabilities  were  about  3.4  times  the  deficits.  If  this  ratio  is  applied,  then  the  losses 
may  be  estimated  as  follows: 

ESTIMATED  DEFICITS  OF  CORPORATIONS  HAVING  NO  NET  INCOME 


Year 

Number  of 

commercial 

failures 

(Dun's) 

Amount  of 

liabilities 

(Dun's) 

(Millions) 

Number  of 
corporations 
reporting  no 

income,  or 
actual  deficit 

Actual 
amount  of 

deficit 
(Millions) 

Estimated 
amount  of 

deficit 
(Millions) 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

12,652 
13,441 
15,452 
16,037 

18,280 
22,156 
16,993 

13,885 
9,982 
6,451 
8,881 

$202 
191 
203 

273 

358 

302 
196 

182 
163 
113 
295 

\"ot  comparable 

128,043 

155,240 
145,532 
134,269 

119,347 
115,518 

$ 

657 

630 
690 
996 

$    6S7 
649 
690 
928 

1,217 
1,027 

1,000 

The  total  number  of  corporations  reporting  and  the  number  reporting  taxable  income 
are  as  follows: 


326 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


Total 
corporations 

Number  of  corporations 
reporting  taxable  income 

Over  $5,000 
only 

All  corporations 

Excluding 
subsidiaries 

1910 

1911 

1912 

1913 

270,202 

288,352 
305,336 

316,909 
329,445 
336,443 

341,253 
351,426 
317,579 
320,198 

54,040 
55,129 
61,116 

188,886 
174,205 
190,911 

206,984 
232,079 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

202,061 
209,634 

For  the  year  1915,  it  is  reported  (Statistics  of  Income,  1916,  p.  15)  that  30,000  corpora- 
tions showing  a  deficit  were  included  which  should  have  been  reported  in  1914.  This 
correction  is  made  in  the  Table  above. 

The  decrease  in  1918  is  due  to  consolidated  returns,  and  for  this  reason  is  not  included 
in  computing  the  ratio  between  the  losses  reported  for  tax  purposes  and  the  failures 
reported  by  Dun's  Review. 

c  Raised  by  $400  million  to  account  for  earnings  of  corporations  under  $5,000  which 
were  not  repotted. 

d  The  following  samples  of  net  earnings  of  identical  corporations  were  used  for  the 
purposes  of  comparison: 

EARNINGS  OF  IDENTICAL  CORPORATIONS 

(Millions  of  Dollars) 


Professor 

Earnings  of 

205  industrial 

Friday's  sample 

national  banks 

Sample  of  62 

Year 

corporations 

of  251 
corporations 

(Comptroller  of 
Currency) 

public  utilities 

1910 

$    383 

$ 

$154 

$  84 

1911 

347 

459 

157 

81 

1912 

385 

513 

149 

86 

1913 

420 

542 

161 

86 

1914 

315 

415 

149 

87 

1915 

585 

699 

127 

103 

1916 

1,045 

1,402 

158 

119 

1917 

1,032 

1,774 

194 

101 

1918 

777 

1,591 

212 

61 

1919 

671 

240 

55 

1920 

672 

282 

According  to  the  samples  of  Industrials,  the  earnings  for  1913  should  be  from  6  per 
cent  to  9  per  cent  higher  than  in  1912.  The  earnings  for  1914  should  be  about  25 
per  cent  less  than  in  1913.  There  was  a  large  increase  in  1915  over  1914 — about  70 
per  cent  to  80  per  cent.  These  figures  are  not  to  be  taken  as  entirely  typical,  for  rail- 
roads and  public  utilities  vary  in  different  proportions. 

e  The  proportions  into  which  net  earnings  are  divided  between  dividends  and  surplus, 
according  to  samples,  are  as  follows: 


'* 


CORPORATE  SURPLUS 


327 


PROPORTIONS  INTO  WHICH   NET  EARNINGS  ARE  DIVIDED  BETWEEN 
DIVIDENDS  AND  SURPLUS  IN  DIFFERENT  INDUSTRIES 

(Per  cents) 
(D  =  dividends;  S  =  surplus) 


Year 

Finan- 
cial' 

Commer- 
cial 2 

Manufac- 
turing and 
mining  8 

Pub 
utiliti 

lie 
es  ■ 

Pail- 
roads5 

Weighted 
average6 

D 

S 

D 

S 

D          S 

D 

S 

D 

S 

D            S 

1910 

69 
73 

31 

27 

55 
63 

45 
37 

55        45 
63         37 

61 

68 

39 

32 

62 

72 

38 
28 

58.8  41.2 

1911 

66  6  33.4 

1912 

81 

19 

67 

33 

67        33 

73 

27 

82 

Is 

71.9   28.1 

1913 

74 

26 

67 

33 

67        33 

74 

26 

73 

27 

69.5   30.5 

1914 

81 

19 

51 

49 

79         21 

76 

24 

92 

8 

77.9    22.1 

1915 

89 

11 

44 

56 

45         55 

67 

33 

86 

14 

56.2   43.8 

1916 

73 

27 

34 

66 

37         63 

63 

37 

42 

58 

42.7    57.3 

1917 

65 

35 

41 

59 

47         53 

75 

25 

52 

Is 

50.2   49.8 

1918 

61 

39 

49 

51 

55        45 

87 

13 

65 

35 

56.9   43.1 

1919 

56 

44 

35 

65 

56         44 

81 

19 

56 

41 

63.1    36.9 

1920 

52 

48 

64         36 

74 

26 

46 

54 

65.0    35.0) 

1  Based  on  National  Banks.     Reports  of  the  Comptroller  of  the  Currency. 

2  Based  on  15  commercial  corporations  reported  in  Moody's  Manual  from  1914  to 
1919.    Previous  to  1914,  reports  are  inadequate,  and  the  manufacturing  ratio  is  used. 

3  Based  on  200  corporations  reported  in  Moody's  Manual  and  supplied  by  certain 
banking  institutions. 

4  Based  on  62  public  utility  corporations  reported  in  Moody' '.s  Manual. 

5  Based  on  reports  of  Interstate  Commerce  Commission  and  reports  in  Moody's 
Manual  covering  practically  all  railroads. 

6  In  collecting  the  data  on  which  Column  VII  is  based,  care  has  been  taken  to  include 
in  surplus  only  those  amounts  actually  carried  as  such  in  the  books.  In  conformity 
with  this  plan,  special  reserve  accounts,  reserves  against  bad  debts,  losses  in  inventory 
and  depreciation  have  been  excluded.  This  same  method  was  followed  in  the  earlier 
investigation  of  the  genuineness  of  surplus  accounts,  so  that  the  two  computations 
have  been  made  on  the  same  basis. 

These  percentages  have  been  weighted  according  to  the  estimated  importance  of 
each  class  of  institutions,  and  the  weighted  average  for  each  year  is  applied  to  the  net 
earnings.     1920  is  an  approximation,  since  complete  data  are  lacking. 

/The  New  York  Journal  of  Commerce  reports  the  following  amounts  of  dividends 
paid  by  industrial  corporations  each  year.  It  does  not  explain  how  complete  they 
are  or  whether  they  cover  identical  corporations.  They  are  inserted  for  purposes  of 
comparison. 


328 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


Year 

Dividends 

(Millions  of 

dollars) 

Index  number 

1911 

$368 
394 
445 

436 
422 
546 

681 
645 
576 
599 

1  00 

1912 

1.07 

1913. .  . 

1.21 

1914 

1.18 

1915 

1.14 

1916 

1.48 

1917 

1.85 

1918 

1.75 

1919. 

1.56 

1920 

1.63 

These  amounts  are  reported  in  the  first  issue  of  each  year,  giving  three  previous  years. 
The  amounts  reported  for  the  same  year  are  not  always  identical  and  the  latest  figure 
reported  has  been  taken. 

a  Professor  Friday  has  made  a  similar  computation  of  surplus  (Profits,  Wages  and 
Prices,  p.  64)  and  it  is  of  interest  to  compare  his  results  with  those  given  in  this  study: 

COMPARISON  OF  PROFESSOR  FRIDAY'S  RESULTS  WITH  THOSE  OF  THE 

BUREAU 


(Millions  of  Dollars) 


Year 

1910 

1911 

1912. .  .  . 
1913 

1914 

1915 

1916. 

1917 

1918 

1919.  . .  . 


Total  net  earnings 

Dividends 

Surplus 

Bureau 

Friday 

Bureau 

Friday 

Bureau 

Friday 

$3,436 
3,219 
3,819 
4,000 

$3,360 
3,213 
3,832 
4,340 

$2,020 
2,144 
2,746 

2,780 

$2,290 
2,226 
2,498 
2,871 

$1,416 
1,075 
1,073 
1,220 

$1,070 

988 

1,334 

1,468 

2,800 
4,230 
7,937 

3,711 
5,184 
8,594 

2,181 
2,377 
3,389 

2,412 
2,595 

3,784 

619 
1,853 
4,548 

1,299 
2,590 
4,810 

7,958 
4,513 
6,240 

8,587 
6,300  Est, 
6,700  Est. 

3,995 
2,568 
3,937 

4,652 
4,250  Est. 
3,900  Est. 

3,963 
1,945 
2,303 

3,936 

2,050  Est. 
2,800  Est, 

The  main  discrepancies  are  as  follows: 

Total  net  earnings  differ,  because  Professor  Friday  has  taken  the  published  figures 
without  the  emendations  made  by  the  Bureau  and  for  which  the  reasons  have  been 
discussed.  This  results  in  wide  variations  for  1913,  although  the  percentages  are  quite 
close.  For  1914,  Professor  Friday's  total  is  higher  than  the  Bureau's,  as  is  also  his  esti- 
mate of  surplus.  The  proportions  are  strikingly  different,  although  the  proportion 
which  Professor  Friday  quotes  for  industrials  (Profits,  Wages  and  Prices,  p.  62)  is  very 
close  to  that  found  in  the  sample  of  the  Bureau.  In  the  years  1916  and  1917,  for  which 
better  data  exist,  the  two  estimates  are  in  close  agreement,  and  for  1918,  Professor 
Friday  made  an  advance  estimate,  whereas  the  Bureau  has  had  the  advantage  of  the 
recently  published  statistics. 

§  25e.  Conclusions 

If  the  corporate  surpluses  for  each  year  are  taken  at  85  per  cent  of  their 
face  value,  which  is  about  the  amount  justified  by  the  considerations 


S 


CORPORA'!'!:  SURPLUS 


329 


previously  mentioned,  then  the  final  corporate  surplus,   which  is  to  be 
eounted  as  part  of  the  National  Income,  will  stand  as  follows: 


TABLE  25B 


ESTIMATE  OF  ACTUAL  SAVINGS  IN  THE  FORM  OF  (  '< >RP(  >RATE  SURPLUS 

1910  to  1920 
(Millions  of  dollars) 


Year 

Corporate  surplus" 

1  Istimated  actual 
savings 

1910 

1911 

$1,416 
1,075 
1,073 
1,220 

619 

1,853 
4,548 
3,963 

1,945 
2,303 
1,225 

$1,204 
914 

1912 

1913 : 

1914 

912 

1,037 

1915 

1,575 

1916 

1917 

1918 

3,st)ii 
3,369 

1,653 

1919 

1920 

1,958 

1,011 

«  Table  25A. 


CHAPTER  26 

SUMMARY  OF  PART  II 

§  26a.  The  Total  Income  of  the  United  States,  19 10  to  1919 

The  total  income  of  the  United  States,  as  computed  in  the  preceding 
sections,  may  now  be  summarized  on  page  331. 

§  26b.  The  Degree  of  Error  in  the  Estimate 

It  is  advisable  to  repeat  the  caution  that  these  amounts  are  all  esti- 
mates constructed  from  a  large  amount  of  data  of  varying  reliability. 
Table  26B  shows  first  the  range  within  which  the  income  for  each  year 
probably  lies.  This  range  was  estimated  in  the  same  way  that  the  math- 
ematical "probable  error"  is  computed,  but  it  was  not  possible  to  do  this, 
in  mathematical  terms.  It  is,  therefore,  to  be  regarded  simply  as  a 
guessed  at  "  probable  error."  Next,  is  shown  the  greatest  error  that 
could  be  reasonably  expected,  on  the  assumption  that  each  item  varied 
according  to  the  widest  indications  from  the  figures  as  given,  and  that 
all  these  variations  were  in  the  same  direction.  Thus  is  indicated  the 
outside  limits  within  which  the  National  Income  must  fall,  if  all  the  errors 
judged  possible  by  the  Bureau  have  been  committed,  and  committed  with 
no  offsetting  of  one  error  by  another.  Evidently,  the  chances  that  this 
has  actually  occurred  are  extremely  small. 


330 


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332 


THE  ESTIMATE  BY  INCOMES  RECEIVED 
TABLE  26B 


THE  RANGE  WITHIN  WHICH   THE   INCOME  OF  THE  PEOPLE  OF  THE 

UNITED  STATES  PROBABLY  LIES 


1910  to  1919 

(Billions  of  dollars) 


Year 

Final 
estimate 

Probable  range 

within  which  the 

actual  income 

falls 

Estimated  range 
beyond  which 
actual  income 

cannot  reasonably 
lie 

1910           

31.2 
31.1 
32.4 
33.5 

32.7 
35.9 
45.7 
54.1 

62.0 

66.8 

30.0-32.4 
29.8-32.4 
31.1-33.7 
32.2-34.8 

31.4-34.0 
34.6-37.2 
44.3-47.1 
52.5-55.6 

60.1-63.5 
64.2-68.5 

25.9-36.5 

191  1 

25.9-36.3 

1912 

27.2-37.6 

1913 

27.9-39.1 

1914            

26.7-38.7 

1915 

29.7-42.1 

1916.  .             

40.5-50.9 

1917.               

46.9-61.2 

1918                      

53.5-70.2 

1919                              

58.6-73.1 

1920 

§  26c.  Percentage  Division  of  Number  of  Persons  Having  over  $2,000 

and  Under  $2,000  Income  per  Year 

The  percentage  of  persons  having  incomes  over  and  under  $2,000  and 
the  percentage  of  the  total  income  which  they  received  is  next  shown: — 

TABLE  26C 


PERCENTAGE  OF  PERSONS  HAVING  INCOMES  OVER  AND  UNDER  $2,000 
AND  PERCENTAGE  OF  THE  TOTAL  INCOME  WHICH  THEY  RECEIVED 


1910  to  1919 


Year 

Per  cent  of  total  persons 
having  incomes 

Per  cent  of  income  received  by 
persons  having 

Over  $2,000 

Under  $2,000 

96% 

96 

96 

96 

96 

94 
93 
89 
88 

86 

Over  $2,000 

Under  $2,000 

1910 

1911 

1912 

1913 

1914 

1915             

4% 

4 

4 

4 

4 

6 

7 
11 
12 
14 

33% 

32 

31 

31 

31 

33 
37 
41 
39 

39 

67% 

68 

69 

69 

69 

67 

1916 

63 

1917. 

59 

1918 

1919 

1920 

61 
61 

s 


SUMMARY  OF  PART  II  333 

It  will  be  seen  that  while  the  percentage  of  persons  having  incomes  over 
$2,000  increased  from  about  4  per  cent  in  1910  to  1914,  to  about  14  per 
cent  in  1919,  the  percentage  of  the  income  which  they  received  increased 
only  from  about  32  per  cent  to  about  40  per  cent  during  this  period.  The 
increase  in  the  number  of  persons  having  incomes  over  §2,000  is  doubtless 
closely  connected  with  the  rise  in  prices,  and  does  not  denote  a  corre- 
sponding improvement  in  their  well-being. 

§  26d.  The  Percentage  of  the  Total  Income  Obtained  by  the  Highest 

5  Per  Cent  of  Income  Receivers 

Using  this  table  as  a  basis,  and  checking  with  the  work  in  Part  III,  it 
is  possible  to  make  a  conjectural  estimate  of  the  percentage  of  the  total 
income  which  the  highest  5  per  cent  of  income  receivers  obtained. 

The  method  employed  has  been  to  subtract  from  the  number  of  persons 
having  incomes  over  $2,000  such  a  number  as  will  reduce  the  remainder 
to  5  per  cent  of  the  gainfully  employed.  The  average  income  of  those  who 
are  subtracted  is  then  computed  in  accordance  with  the  distribution  of 
the  entire  income  as  shown  in  Part  III.  While  no  claim  to  strict  accuracy 
can  be  made  for  the  results,  the  error  is  probably  not  sufficient  to 
alter  the  trend  shown.  This  percentage  is  shown  including  and  excluding 
farmers  because  for  many  purposes  farmers  make  a  class  apart  from  the 
remainder  of  the  industrial  community.  Corporate  surplus  is  left  out  of 
this  computation  for  it  is  not  possible  to  locate  the  recipients  with  any 
degree  of  accuracy  (see  Table  26D). 

§  26e.  The  Position  of  the  Farmer 

The  per  cent  of  the  National  Income  which  was  received  by  farmers 
each  year  is  next  shown.  The  number  of  farmers  was  reported  in  1910  as 
0,361,000  and  in  1920  as  0,460,000 — a  gain  which  is  so  small  as  to  be 
practically  negligible  (see  Table  26E). 

§  26f.  Income  in  Each  Year  in  Terms  of  Constant  Purchasing  Power 

Did  the  income  of  the  country  increase  during  the  decade  when  meas- 
ured in  terms  of  serviceable  goods?  In  order  to  answer  this  question  satis- 
factorily a  rather  elaborate  computation  has  been  found  necessary.  There 
is  no  satisfactory  price  index  which  can  be  applied  indiscriminately  to 
all  products;  indeed,  the  variations  of  price  changes  in  different  classes 
of  commodities  is  a  st liking  feature  of  the  decade.  In  order  to  meet  this 
difficulty,  the  income  of  the  country  was  divided  into  four  classes: 

1.  Expenditures  by  persons  having  incomes  over  $2,000. 

2.  Expenditures  by  persons  having  incomes  under  $2,000. 


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SUMMARY  OF  PART  II 


335 


TABLE  26E 


PER  CENT  OF  THE  NATIONAL  INCOME  RECEIVED  BY  FARMERS 


Year 

Total 

national  income 

Farmers'  income 

Percentage  of 

national  income 

(Billions  of  dollars) 

received  by  farmers 

1910 

1911 

1912 

1913 

1914 

$31.2 
31.1 
32.4 
33.5 
32.7 
35.9 
45.7 
54.1 
62.0 
66.8 

$  3.95 
3.70 
4.00 
4.20 
4.20 
4.70 
5.80 
8.80 
10.45 
10.85 
7.20 

12.7 
11.9 
12.3 

12.5 
12  8 

1915 

1916 

1917 

1918 

1919 

13.1 

12.7 
16.3 
16.9 
16  2 

1920 

3.  War  expenditures. 

4.  Construction  expenditures. 

For  each  of  these  divisions,  the  most  plausible  index  number  was  found : 

1.  An  index  number  of  costs  of  living  of  persons  having  incomes  over 
$2,000  was  constructed  by  the  Bureau.      (Chap.  2,  §  2c.) 

2.  For  persons  with  incomes  less  than  $2,000,  the  index  number  of  the 
cost  of  living  of  the  Bureau  of  Labor  Statistics,  Monthly  Labor  Renew, 
June,  1920,  p.  79,  was  used.  The  figures  used  are  for  June  of  each  year. 
The  years  1910  to  1912  have  been  compiled  by  this  Bureau  on  a  basis 
comparable  to  that  used  by  the  Bureau  of  Labor  Statistics.  (Chap. 
2,  §  2b.) 

3.  An  index  number  was  constructed  from  selected  items  of  materials 
used  in  war,  as  estimated  by  the  War  Industries  Board.  (History  of  Prices 
During  the  War,  1919.) 

4.  An  index  number  of  construction  was  obtained  from  the  American 
Telephone  and  Telegraph  Company. 

These  index  numbers  cannot  well  be  carried  back  of  the  year  1913. 
Prior  to  that  year,  the  data  are  too  uncertain  to  permit  of  even  the  crude 
methods  employed  for  the  later  years.  However,  the  general  price  level 
did  not  alter  greatly  during  the  years  1910  to  1913,  so  that  an  application 
of  any  legitimate  index  number  of  prices  and  any  reasonable  subdivision 
of  the  income  would  not  alter  the  final  result  to  any  marked  degree. 

Taking  1913  as  the  basic  year,  computation  gives  the  National  Income 
for  each  year  in  terms  of  dollars  of  constant  purchasing  power  as  shown  in 
Table  26G. 


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SUMMARY  OF  PART  II 


337 


TABLE  26G 


NATIONAL  INCOME  AT  PRICE  LEVEL  OF  1913 


(Huso  Year:  L913) 
1910  to  1919 


Year 

Total  income 
(Billions  of  dollars). 

Weighted  index 
number  <>f  prices 

Income  at  price 

level  of  1913 

(Billions  of  dollars) 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

$31.2 
31.1 
32.4 
33.5 
32.7 
35.9 

45.7 

54 . 1 
62.0 
66.8 

98 . 0 

98.0 

99.] 

100.0 

100.6 

102.3 

113.7 
136.1 
160.7 
177.7 

$31.8 
31.7 
32.7 
33.5 

32.5 
35.1 

40.2 
39.7 
38.6 
37.6 

§  26g.  The  Average  Income  per  Capita  in  Each  Year 

The  next  table  shows  the  average  income  per  capita  of  the  entire  popu- 
pation  and  of  the  gainfully  employed.  The  entire  population  has  been 
interpolated  according  to  a  method  devised  by  Mr.  King,  of  which  the 
details  are  shown  in  Chapter  2,  §  2a. 

The  number  of  the  "gainfully  employed''  is  uncertain,  owing  to  the 
divergent  ways  of  counting  the  persons  included  under  agricultural  labor. 
It  seems  certain  that  different  standards  have  been  used  by  the  Census 
enumerators  in  determining  whether  a  housewife  or  member  of  the  family 
who  helps  in  the  fields  intermittently  or  only  for  a  few  days  during  the  har- 
vest season  should  or  should  not  be  included.  On  account  of  this  difficulty 
(and  it  appears  to  invalidate  any  close  comparison  between  the  totals  of 
1910  and  the  estimated  totals  of  1920),  the  number  of  farm  laborers  has 
been  kept  at  a  constant  figure.  In  a  measure,  this  comes  nearer  expressing 
the  truth  than  any  other  arbitrary  interpretation,  for  there  is  much  evi- 
dence to  indicate  that  during  1916  to  1919,  when  farm  laborers  were 
drafted  into  other  industries,  their  places  were  taken  by  members  of  the 
family  who  are  normally  not  included  among  the  gainfully  employed. 
This  view  was  taken  by  Mr.  Gray  Silver  in  explaining  the  large  increase 
of  farmers'  income  in  the  years  1917  to  1919. ! 

The  number  of  gainfully  employed  which  is  presented  is  the  number 
actually  employed  in  each  year,  as  distinguished  from  the  number  attached 

'  See  Vol.  I,  page  38. 


338 


THE  ESTIMATE  BY  INCOMES  RECEIVED 


to  the  industry.  The  former  number  is  always  smaller  than  the  latter,  and 
in  times  of  depression  is  apt  to  be  considerably  smaller.  It  reflects  in  a 
broad  way  the  changes  in  degree  of  unemployment.1 

The  results  are  presented  in  several  ways:  (1)  per  capita  income  for  the 
whole  population,  (2)  per  capita  income  for  the  gainfully  employed,  and 
(3)  both  sets  of  per  capita  figures  are  given  first  in  money  of  current  and 
second  in  money  of  constant  purchasing  power.  Needless  to  say,  changes 
in  economic  welfare  are  best  approximated  by  the  figures  from  which  the 
price  fluctuations  have  been  eliminated. 

TABLE  26H 

PER  CAPITA  INCOME  AND  ITS  PURCHASING  POWER  AT  THE  PRICE 

LEVEL  OF  1913 


Income  per  capita  of  the 
entire  population 

Income  per  capita  of  the 
gainfully  employed 

Year 

Number 

of 
persons 

Income 

per 
capita 

Purchasing 
power  at 

1913 
price  level 

Number 

of 
persons 

Income 

per 
capita 

Purchasing 
power  at 

1913 
price  level 

(Millions) 

(Dollars) 

(Millions) 

(Dollars) 

1910  .  . 

1911  .  .  . 

1912  .  .  . 

1913  .  .. 

1914  ... 

1915  .  .  . 

1916  .  .  . 

1917  .  .  . 

1918  ... 

1919  .  .  . 

1920  .  .  . 

92.23 
93.81 
95.34 

97.28 

99.19 

100.43 

101.72 
103.06 
104 . IS 

104.85 

$338 
332 
340 

344 
330 
357 

449 
525 
595 

637 

$345 
338 
343 

344 
328 
349 

395 
385 
371 

359 

33 .  82 
34.35 
34.81 

35.08 
34.87 
34.91 

37.65 
38.73 
40.92 

39.52 

$    923 
907 
931 

955 

936 

1,028 

1,214 
1,397 
1,515 

1,690 

$    940 
923 
939 

955 

932 

1,005 

1,068 

1,025 

943 

951 

1  In  comparing  it  to  the  Census  figures  our  figures  for  the  number  of  gainfully  employed 
for  1910  and  in  1920,  two  items  should  be  kept  in  mind:  (1)  The  Census  includes  3,100,000 
farm  laborers  working  on  home  farms,  who  are  not  included  here.  (2)  The  Census  figures 
include  all  those  attached  to  an  industry,  whereas  only  those  actually  at  work  are  included 
here.  We  estimated  that  about  3  per  cent  are  normally  unemployed,  that  is  to  say,  about 
one  million  persons. 


PART  III 

THE  PERSONAL  DISTRIBUTION  OF  INCOME  IN  THE 

UNITED   STATES 

By 
FREDERICK  R.  MACAULAY 

ASSISTED    BY 
E.   GAIL  BENJAMIN 


<* 


CHAPTER  27 
THE  PROBLEM 

What  is  the  frequency  distribution  of  annual  income  among  personal 
income  recipients  in  the  United  States?  Before  we  can  give  an  intelligent 
answer  to  this  question,  we  must  formulate  it  more  definitely  by  indicating 
certain  connotations  which  logic  or  expediency  leads  us  to  attach  to  some 
of  its  terms. 

By  income  it  seems  desirable  to  mean  actual  money  income,  plus  the 
estimated  money  value  of  the  more  important  of  those  items  of  commodity 
or  service  income  on  which  a  money  value  is  ordinarily  placed.  Two  of 
the  most  important  items  which  are  thus  included  are  the  annual  rental 
values  of  owned  homes  and  the  value  of  farm  produce  consumed  by  farmers' 
families. 

In  line  with  the  ordinary  convention,  we  have  excluded  from  our  defini- 
tion of  income,  that  income,  whether  monetary  or  non-monetary,  which  a 
wife  receives  from  her  husband  or  a  child  from  its  parents.1  Not  only  is 
such  exclusion  practically  expedient  but  it  is  also  theoretically  defensible 
and  that  quite  apart  from  the  fact  that  a  money  value  is  not  ordinarily 
placed  on  the  services  of  wife  or  child,  wages  of  housekeepers  to  the  con- 
trary notwithstanding. 

The  frequency  distribution  resulting  from  the  exclusion  of  such  quasi 
incomes  will  be  less  heterogeneous  and  more  significant  and  interpretable 
than  the  distribution  which  would  result  from  inclusion.  For  the  relation 
of  the  incomes  of  wives  and  children  to  the  economic  struggle  is  derived 
and  secondary,  while  that  of  most  other  incomes  is  direct  and  primary. 
Now,  though  the  distribution  of  income  among  persons  is  not  synonymous 
with  distribution  among  the  factors  of  production,  the  two  problems  are 
very  closely  related.  An  individual's  income  may  be  thought  of  as  made 
up  of  wages,  rent,  interest  and  dividends,  profits,  and  gifts  or  allowances. 
If  we  omit  this  last  type  of  income,  the  problem  of  factorial  distribution 
proposes  an  investigation  of  how  and  why  the  individual  received  what 
remains.  Even  if  gifts  and  allowances  admitted  of  any  such  systematic 
and  reasoned  explanation  as  may  be  given  of  rent,  wages,  etc.,  the  ex- 
planation would  be  of  a  totally  different  kind.  Hence,  for  the  purposes  of 
this  investigation,  it  seems  undesirable  to  classify  as  income,  the  receipts, 

1  That  is,  while  such  income  has,  of  course,  been  counted  in  the  first  instance  as  income 
of  the  husband  or  parent  it  has  not  been  re-counted  as  income  of  the  wife  or  child. 

oil 


342  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

whether  monetary  or  non-monetary,  of  those  persons  receiving  merely 
allowances  or  gifts.1 

Similar  considerations  have  led  us  to  think  of  an  income  recipient  as  an 
individual  rather  than  a  family.  Just  as  it  is  the  husband  and  not  the 
wife,  the  parent  and  not  the  child,  so  it  is  the  individual  and  not  the  family 
who,  as  an  income  receiver,  comes  into  direct  economic  relationship  with 
the  machinery  of  distribution. 

The  chief  argument  in  favor  of  family  rather  than  individual  treatment 
of  the  frequency  distribution  is  based  upon  the  idea  that,  though  income 
accrues  to  the  individual  and  not  the  family,  the  family  is  a  more  significant 
unit  of  economic  need  than  the  individual.  But  this  is  a  different  approach 
to  the  question  and  has,  of  course,  no  intimate  relation  to  the  problem  of 
factorial  distribution.  Moreover,  we  must  remember  that  if  we  are  going 
to  improve  appreciably  upon  the  individual,  even  as  a  need  unit,  we  can- 
not stop  with  actual  biological  families  with  their  great  variation  in  size 
and  constitution,  but  must  introduce  the  concept  of  the  theoretical  family — 
father,  mother  and  three  children,  for  example.  This  last  concept  is,  in 
its  raw  form,  quite  unusable.  The  population  is  not  made  up  of  such 
theoretical  families.  We  may  discuss  what  a  family  of  five  ought  to  get 
to  maintain  a  decent  standard  of  living,  but  we  cannot  divide  the  actual 
population  into  families  of  five  and  discuss  what  these  non-existent  hy- 
pothetical families  actually  do  get.  There  remains  the  alternative  of  ex- 
pressing actual  families  in  terms  of  some  need  unit  such  as  the  "ammain."  2 
While  this  last  procedure  would  probably  yield  an  extremely  interesting 
distribution  based  upon  need  units,  it  is  impractical  to  attempt  any  such 
solution  with  the  data  available.3 

Though  a  distribution  of  income  among  actual  biological  families  would 
appear  to  be  somewhat  less  enlightening  and  interpretable  than  a  dis- 
tribution by  individuals  or  by  ammains,  it  would  have  its  own  peculiar 
interest  and  we  would  have  attempted  its  construction  had  the  data  been 
adequate  for  such  a  purpose.  Most  of  the  data  bearing  on  income  dis- 
tribution are  in  the  individual  form;  wages  distributions,  for  example,  are 

1  Of  course  if  the  wife  or  child  has  "independent"  income,  that  income  is  no  longer  of  the 
nature  of  a  gift  or  allowance  even  though  it  may  arise  from  property  originally  deeded  by 
the  husband  or  father.     It  is  now  explainable  in  terms  of  rent,  interest,  etc. 

If  income  be  defined  as  above,  the  term  personal  income  recipient  will  correspond  closely 
to  the  census  expression  person  gainfully  employed.  Perhaps  the  most  important  difference 
is  that  we  do  not  and  the  Census  does  include  as  separate  income  recipients,  farm  laborers 
working  on  the  home  farm. 

-'  Ammain  is  a  word  coined  by  W.  I.  King  and  E.  Sydenstricker  and  defined  by  them,  for 
any  given  class  of  people,  as  "a  gross  demand  for  articles  of  consumption  having  a  total 
money  value  equal  to  that  demanded  by  the  average  male  in  that  class  at  the  age  when  his 
total  requirements  for  expense  of  maintenance  reach  a  maximum."  Measurement  of  Relative 
Economic  Status  of  Families.  Quarterly  Publications  of  the  American  Statistical  Association, 
Sept.,  1921,  p.  852. 

1  It  is  of  course  quite  possible  to  estimate  the  average  per  ammain  income,  as  has  been  done 
!>y  Mr.  King;  the  total  income  of  the  people  can  he  divided  by  the  estimated  number  of 
ammains  in  the  population.     See  pages  'l'.V,\  and  234. 


THE  PROBLEM  343 

almost  without  exception  in  that  form.  Now  to  estimate  the  frequency 
distribution  of  income  among  families  from  data  which,  in  the  first  place, 
are  in  the  individual  form  and,  in  the  second  place,  are  extremely  inade- 
quate for  estimating  even  the  distribution  among  individuals,  could  only 
increase  the  degree  of  uncertainty  in  our  results. 

A  few  words  explaining  the  reason  for  introducing  the  next  chapter  at 
this  point  are  not  out  of  place  here.  The  data  upon  which  an  estimate  of 
even  the  individual  distribution  of  income  in  the  United  States  must  be 
based  impress  one  as  being  in  such  shape  that  it  is  impossible  to  arrive  at 
more  than  the  roughest  sort  of  approximation  by  any  mere  direct  adding 
process.  Some  more  ingenious  plan  would  seem  almost  necessary.  For 
example,  would  it  not  be  possible  to  formulate  a  general  mathematical 
"law"  for  the  distribution  of  incomes  which  law  might  then  be  used  for 
"adjusting"  the  tentative  and  hypothetical  results  obtained  from  piecing 
together  the  existing  scanty  and  inadequate  material? 

The  possibility  and  desirability  of  mathematically  describing  the  fre- 
quency distribution  of  income  would  seem  intimately  tied  up  with  the  case 
for  mathematically  describing  error  distributions  and  statistical  distribu- 
tions in  general.  The  fact  that,  in  our  problem,  the  "law"  would  be  largely 
derived  from  the  same  data  as  those  which  were  to  be  "adjusted"  need 
not  greatly  disturb  us.  The  procedure  of  adjusting  observations  in  the 
light  of  a  mathematical  expression  derived  from  the  same  observation-  is 
not  novel.  A  number  of  attempts,  one  of  which  has  become  world-famous, 
have  been  made  to  demonstrate  that  the  distribution  of  income  follows 
a  definite;  mathematical  law.  However,  the  next  chapter  will  show  why 
we  fear  that  no  rational  and  useful  mathematical  law  will  soon  be  formu- 
lated. 


CHAPTER  28 

PARETO'S  LAW  AND  THE  GENERAL  PROBLEM  OF  MATHE- 
MATICALLY DESCRIBING  THE  FREQUENCY  DISTRIBU- 
TION OF  INCOME 

The  problem  of  formulating  a  mathematical  expression  which  shall  de- 
scribe the  frequency  distribution  of  income  in  all  places  and  at  all  times, 
not  only  closely,  but  also  elegantly,  and  if  possible  rationally  as  opposed 
to  empirically,  has  had  great  attractions  for  the  mathematical  economist 
and  statistician.  The  most  famous  of  all  attempts  at  the  solution  of  this 
fascinating  problem  are  those  which  have  been  made  by  Vilfredo  Pareto. 
Professor  Pareto  has  been  intensely  interested  in  this  subject  for  many 
years  and  the  discussion  of  it  runs  through  nearly  all  of  his  published 
work.  The  almost  inevitable  result  is  that  "Pareto's  Law"  appears  in  a 
number  of  slightly  different  forms  and  Professor  Pareto's  feelings  con- 
cerning the  "law"  run  all  the  way  from  treating  it  as  inevitable  and  im- 
mutable to  speaking  of  it  as  "merely  empirical." 

In  its  best  known,  most  famous,  and  most  dogmatic  form,  Pareto's  Law 
runs  about  as  follows: 

1.  In  all  countries  and  at  all  times  the  distribution  of  income  is  such 
that  the  upper  (income-tax)  ranges  of  the  income  frequency  distribution 
curve  may  be  described  as  follows:  If  the  logarithms  of  income  sizes  be 
charted  on  a  horizontal  scale  and  the  logarithms  of  the  numbers  of  persons 
having  an  income  of  a  particular  size  or  over  be  charted  on  a  vertical 
scale,  then  the  resulting  observational  points  will  lie  approximately  along 
a  straight  line.    In  other  words,  if 

x  =  income  size  and 

y  =  number  of  persons  having  that  income  or  larger 
then  log  y  =  log  b  -f-  m  log  x 
ory  =  bx"1.1 

2.  In  all  countries  and  at  all  recent  times  the  slope  of  this  straight  line 
fitted  to  the  cumulative  distribution,  that  is,  the  constant  m  in  the  equa- 
tion y  =  bx"1,  will  bo  approximately  1.5.2 

3.  The  rigidity  and  universality  of  the  two  preceding  conclusions  strongly 

1  If  the  cumulative  distribution  (cumulating  from  the  higher  towards  the  lower  incomes 
as  Pareto  does)  on  a  double  log  scale  could  be  exactly  described  by  the  equation  y  =  bxm, 
the  non-cumulative  distribution  could  be  described  by  the  equation  Y  =  —  mbxm     1. 

2  Strictly,  minus  1.5,  though  Pareto  neglects  the  sign. 

344 


PARETO'S  LAW  345 

suggest  that  the  shape  of  the  income  frequency  distribution  curve  on  a 
double  log  scale  is,  for  all  countries  and  at  all  times,  inevitably  the  same 
not  only  in  the  upper  (income-tax)  range  but  throughout  its  entire  length. 

4.  If  then  the  nature  of  the  whole  income  frequency  distribution  is 
unchanging  and  unchangeable  there  is,  of  course,  no  possibility  of  economic 
welfare  being  increased  through  any  change  in  the  proportion  of  the  total 
income  going  to  the  relatively  poor.  Economic  welfare  can  be  increased 
only  through  increased  production.  In  other  words,  Panto's  Law  in  this 
extreme  form  constitutes  a  modern  substitute  for  the  Wages  Fund  Doc- 
trine. 

This  is  the  most  dogmatic  form  in  which  the  "law"  appears.  In  his 
later  work  Professor  Pareto  drew  further  and  further  away  from  the  con- 
fidence of  his  first  position.  He  had  early  stated  that  the  straight  line  did 
not  seem  adequate  to  describe  distributions  from  all  times  and  places  and 
had  proposed  more  complicated  equations.1  He  has  held  more  strongly 
to  the  significance  of  the  similarity  of  slopes  but  he  has  wavered  in  his 
faith  that  the  lower  income  portions  of  the  curve  (below  the  income-tax 
minimum)  were  necessarily  similar  for  all  countries  and  all  times.  He  has 
given  up  the  suggestion  that  existing  distributions  are  inevitable  though 
still  speaking  of  the  law  as  true  within  certain  definite  ranges.  To  translate 
from  his  Manuel  (p.  391):  "Some  persons  would  deduce  from  it  a  general 
law  as  to  the  only  way  in  which  the  inequality  of  incomes  can  be  dimin- 
ished. But  such  a  conclusion  far  transcends  anything  that  can  be  derived 
from  the  premises.  Empirical  laws,  like  those  with  which  we  are  here 
concerned,  have  little  or  no  value  outside  the  limits  for  which  they  were 
found  experimentally  to  be  true."  Indeed  Professor  Pareto  has  himself 
drawn  attention  to  so  many  difficulties  inherent  in  the  crude  dogmatic 
form  of  the  law  that  this  chapter  must  not  be  taken  as  primarily  a  criticism 
of  his  work  but  rather  as  a  note  on  the  general  problem  of  mathematically 
describing  the  frequency  distribution  of  incomes. 

Almost  as  soon  as  he  had  formulated  his  law  Professor  Pareto  recognized 
the  impossibility  of  extrapolating  the  straight  line  formula  into  the  lower 
income  ranges  (outside  of  the  income-tax  data  which  he  had  been  using). 
The  straight  line  formula  involves  the  absurdity  of  an  infinite  number  of 
individuals  having  approximately  zero  incomes.  Professor  Pareto  felt 
that  this  zero  mode  with  an  infinite  ordinate  was  absurd.  He  believed 
that  the  curve  must  have  a  definite  mode  at  an  income  size  well  above 
zero  2  and  with  a  finite  number  of  income  recipients  in  the  modal  group. 

1  The  inadequacy  of  these  more  complicated  equations  is  discussed  later.  See  pp.  .'lis,  363 
and  3(54. 

2  This  is,  of  course,  not  absolutely  necessary.  It  depends  upon  our  definitions  of  income 
and  income  recipient.  If  we  include  the  negligible  money  receipts  of  young  children  living 
at  home  we  might  possibly  have  a  mode  close  to  zero.  There  are  few  children  who  do  not 
really  earn  a  few  pennies  each  year.     Compare  Chart  31A  page  41(3. 


346  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

Having  come  to  the  conclusion  that  the  income  frequency  distribution 
curve  must  inevitably  have  a  definite  mode  well  above  zero  income  and 
tail  off  in  both  directions  from  that  mode,  Professor  Pareto  was  led  to 
think  of  the  possibilities  of  the  simplest  of  all  frequency  curves,  the  normal 
curve  of  error.  However,  after  examination  and  consideration,  he  felt 
strongly  that  the  normal  curve  of  error  could  not  possibly  be  used.  He 
became  convinced  that  the  normal  curve  was  not  the  law  of  the  data  for 
the  good  and  sufficient  reason  that  the  part  of  the  data  curve  given  by 
income-tax  returns  is  of  a  radically  different  shape  from  any  part  of  a 
normal  curve.1 

Professor  Pareto  finds  a  further  argument  against  using  the  normal  curve 
in  the  irrationality  of  such  a  curve  outside  the  range  of  the  data. 
The  mode  of  the  complete  frequency  curve  for  income  distribution  is  at 
least  as  low  as  the  minimum  taxable  income.  Income-tax  data  prove  this. 
However,  a  normal  curve  is  symmetrical.  Hence,  if  a  normal  curve  could 
describe  the  upper  ranges  of  the  income  curve  as  given  by  income-tax  data 
then  in  the  lower  ranges  it  would  cut  the  y  axis  and  pass  into  the  second 
quadrant,  in  other  words  show  a  large  number  of  negative  incomes. 

Now,  aside  from  the  fact  that  this  whole  argument  is  unnecessary  if 
the  data  themselves  cannot  be  described  even  approximately  by  a  normal 
curve,  Professor  Pareto's  discussion  reveals  a  curious  change  in  his  middle 
term.  If  he  had  said  that  a  symmetrical  curve  on  a  natural  scale  with  a 
mode  at  least  as  low  as  the  income-tax  minimum  would  show  unbelievably 
large  negative  incomes  we  could  follow  him  but  when  he  states  that  not 
only  can  there  be  no  zero  incomes  but  that  there  can  be  no  incomes  below 
"the  minimum  of  existence"  we  realize  that  he  has  unconsciously  changed 
the  meaning  of  his  middle  term.  Having  examined  a  mass  of  income-tax 
data,  all  of  which  were  concerned  with  net  money  income  and  from  these 
data  having  formulated  a  law,  he  now  apparently  without  realizing  it, 
changes  the  meaning  of  the  word  income  from  net  money  income  to  money 
value  of  commodities  consumed,  and  assumes  that  those  who  receive  a  money 
income  less  than  a  certain  minimum  must  inevitably  die  of  starvation. 

1  Though  Pareto  seems  to  have  thoroughly  understood  this  fact,  his  discussion  is  not  al- 
together satisfactory.  He  states  that  the  data  for  the  higher  incomes  show  a  larger  number 
of  such  incomes  than  the  normal  curve  would  indicate.  This  is  hardly  adequate.  To  have 
stated  that  the  upper  and  lower  ranges  showed  too  many  incomes  as  compared  with  tin  middle 
range  would  have  been  better.  An  easy  way  to  realize  clearly  the  impossibility  of  describing 
income-tax  data  by  a  normal  curve  is  to  plot  a  portion  of  the  non-cumulative  data  on  a  natural 
x  log  y  basis.  When  so  charted  the  data  present  a  concave  shaped  curve.  However,  if  the 
data  were  describable  by  any  part  of  a  normal  curve  of  error,  they  would  show  a  convex  ap- 
pearance, or  in  the  limiting  case  a  straight  line,  as  the  equation  of  the  normal  curve  of  error 
—  x- 

'  //.r  =  >.i„e  "<r"  )  becomes,  on  a  natural  x  log  y  scale,  logeyx  =  logey0  —  ^.ora  second  degree 

parabola  whose  axis  is  perpendicular  to  the  x  axis  of  coordinates. 

The  reader  must  note  that  the  limiting  straight  line  case  mentioned  above  is  on  a  natural 
x  log  y  scale  and  not  (as  the  Pareto  straight  line)  on  a  log  x  log  y  scale.  (Note  concluded 
page  347.) 


PARETO'S  LAW 


347 


Children  receive  in  general  negligible  money  incomes.  Many  other  persons 
in  ilie  community  are  in  the  same  position.  A  business  man  may  "lose 
money"  in  a  given  year,  in  other  words  he  may  have  a  negative  money 
income.  There  seems  no  essential  absurdity  in  assuming  that  a  large 
number  of  persons  receive  money  incomes  much  less  than  necessary  to 

(Note  1  page  346  concluded.) 

Chart  28A  showine;  curves  fitted  to  observations  on  the  heights  of  men  illustrates  the  ap- 
pearance of  the  normal  curve  on  a  natural  scale  and  on  a  natural  ./■  log  .'/  scale.  That  chart 
also  illustrates  another  fact  of  importance  in  this  discussion,  namely,  that  fitting  to  a  different 
function  of  the  variable  giv<  s  a  different  fit. 


! 


-150 
-120 
-90 

-60 
-30 
-/5 


10 


r 


DISTRIBUTION  OF  HEIGHTS  OF  1078  MEN. 

B/OMETR/Kf?  VOL  II  Pf/5  (FATHERS) 

1-Normal  Curve  Fitted  to  Natural  Scale 
Data  by  Method  of  Mom ents,  also 
Loss  of  Same. 

2-5econd  Degree  Parabola  Fitteo  to 
Natural  x  Loa  Y  Data  by  Method    of 
Least  Squares, also  Antilogs  of5ame. 


CHART  28A 


A/ATC/?/)L 


S3 5 1  59S      60S      f'S       62S      63S       64 S     6S5       6SS      67 'S      68 S      69S      70.S      71.5      72.5      735       745 

HEIGHT  IN  IHCHES 


-/50 


585    535    60S    6'S     €2  5    635     645     655     665     67.5     685     695 

HEIGHT  IH  IHCHES 


348  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

support  existence.  When  in  1915  Australia  took  a  census  of  the  incomes 
of  all  persons  "possessed  of  property,  or  in  receipt  of  income,"  over  14 
per  cent  of  the  returns  showed  incomes  "deficit  and  nil."  x 

Professor  Pareto's  realization  of  the  impossibility  of  describing  income 
distributions  by  means  of  normal  curves  led  him  to  the  curious  conclusion 
that  such  distributions  were  somehow  unique  and  could  not  be  explained 
upon  any  "chance"  hypothesis.  "The  shape  of  the  curve  which  is  fur- 
nished us  by  statistics,  does  not  correspond  at  all  to  the  curve  of  errors, 
that  is  to  say  2  to  the  form  which  the  curve  would  have  if  the  acquisition 
and  conservation  of  wealth  depended  only  on  chance."  3  Moreover,  while 
Professor  Pareto's  further  suggestion  of  possible  heterogeneity  in  the  data 
corresponds  we  believe  to  the  facts,  his  reason  for  making  such  a  sug- 
gestion, namely  that  the  data  cannot  be  adequately  described  by  a 
normal  curve,  is  irrelevant.4  "Chance"  data  distributions  are  no  longer 
thought  of  as  necessarily  in  any  way  similar  to  the  normal  curve.  Even 
error  distributions  commonly  depart  widely  from  the  normal  curve. 
The  best  known  system  of  mathematical  frequency  curves,  that  of 
Karl  Pearson,  is  intended  to  describe  homogeneous  material  and  is 
based  upon  a  probability  foundation,  yet  the  normal  curve  is  only 
one    of    the    many    and    diverse    forms    yielded    by    his    fundamental 

d  log  y               x  +  a 
equation   —  =  .° 

dx  b0  +  b\X  -f-  b2x2 

While  Pareto's  Law  in  its  straight  line  form  was  at  least  an  interesting 
suggestion,  his  efforts  to  amend  the  law  have  not  been  fruitful.  His  at- 
tempts to  substitute  logJV  =  logeA  —  a  loge(x  +  a)  or  even  log^  = 
logeA  —  a  loge(z  +  a)  —  fix  for  the  simpler  log  N  =  log  A  —  a  logz 
have  not  materially  advanced  the  subject.6  The  more  complicated  curves 
have  the  same  fundamental  drawbacks  as  the  simpler  one.  Among  other 
peculiarities  they  involve  the  same  absurdity  of  an  infinite  number  of 
persons  in  the  modal  interval  and  none  below  the  mode.  Along  with  the 
doubling  of  the  number  of  constants,  there  comes  of  course  the  possibility 
of  improving  the  fit  within  the  range  of  the  data.  Such  improvement  is, 
however,  purely  artificial  and  empirical  and  without  special  significance, 
as  can  be  easily  appreciated  by  noticing  the  mathematical  characteristics 
of  the  equation. 

A  number  of  other  statisticians  have  at  various  times  fitted  different 
types  of  frequency  curves  to  distributions  of  income,  wages,  rents,  wealth, 

1  Compare  Table  29A. 

2  My  italics. 

3  Manuel,  p.  385.    See  also  Cours,  pp.  416  and  417. 
«  Vid.  Cours,  pp.  416  and  417. 

5  Professor  A.  \V.  Flux  in  a  review  of  Pareto's  Cours  aV Economie  Politique  (Economic  Journal, 
March,  1897)  drew  attention  to  the  inadequacy  of  Pareto's  conception  of  what  were  and  what 
were  not  "chance"  data. 

e  Cf.  Cours,  vol.  II,  p.  305,  note. 


PARETO'S  LAW  349 

or  allied  data.1  However,  no  one  has  advanced  such  claims  for  a  "law" 
of  income  2  distribution  as  were  at  one  time  made  by  Professor  Pareto. 
When  considering  the  possibility  of  helpfully  describing  the  distribution 
of  income  by  any  simple  mathematical  expression,  one  inevitably  begins 
by  examining  "Pareto's  Law."  It  is  so  outstanding.  Let  us  therefore 
examine  Pareto's  Law. 

1.  Do  income  distributions,  when  plotted  on  a  double  log  scale, 
approximate  straight  lines  closely  enough  to  give  such  approxi- 
mation much  significance? 

Before  attempting  to  answer  this  question  it  is  of  course  necessary  to 
decide  how  we  shall  obtain  the  straight  line  with  which  comparisons  are 
to  be  made. 

Professor  Pareto  fitted  straight  lines  directly  by  the  method  of  least 
squares  to  the  cumulative  distribution  plotted  on  a  double  log  scale.  The 
disadvantage  of  this  procedure  is  that,  though  one  may  obtain  the  straight 
line  which  best  fits  the  cumulative  distribution,  such  a  straight  line  may  be 
anything  but  an  admirable  fit  to  the  non-cumulative  figures.  For  example, 
if  a  straight  line  be  fitted  by  the  method  of  least  squares  to  Prussian  re- 
turns for  1886  (as  given  by  Professor  Pareto)  the  total  number  of  income 
recipients  within  the  range  of  the  data  is,  according  to  the  fitted  straight 
line,  only  5,399,000  while  the  actual  number  of  returns  was  5,557,000, 
notwithstanding  the  fact  that  Prussia,  1886,  is  a  sample  which  runs  much 
more  nearly  straight  than  is  usual.  How  bad  the  discrepancy  may  be 
where  the  data  do  not  even  approximate  a  straight  line  is  seen  in  Professor 
Pareto's  Oldenburg  material.  There  the  least-squares  straight  line  fitted 
to  the  cumulative  distribution  on  a  double  log  scale  gives  91,222  persons 
having  incomes  over  300  marks  per  annum  while  the  data  give  only  54,309. 

■Among  others,  Karl  Pearson,  F.  Y.  Edgeworth,  Henry  L.  Moore,  A.  L.  Bowlcy,  Lucien 
Mareh,  J.  C.  Kapteyn,  C.  Bresciani,  C.  Gini,  F.  Savorgnan. 

-  Professor  H.  L.  Moore,  in  his  Laws  of  Wages,  is  concerned  primarily  with  wages  not 
income. 

Professor  J.  C.  Kapteyn  has  presented  a  pretty  but  somewhat  hypothetical  argument  sug- 
gesting that  the  skewness  in  the  income  frequency  curve  should  be  such  that  plotting  on  a 
log  x  basis  would  eliminate  it. 

"In  several  cases  we  feel  at  once  that  the  effect  of  the  causes  of  deviation  cannot  be  inde- 
pendent of  the  dimension  of  the  quantities  observed.  In  such  cases  we  may  conclude  at  once 
that  the  frequency  curve  will  be  a  skew  one.    To  take  a  single  example: 

"Suppose  10(10  men  to  begin  trading,  each  with  the  same  capital;  in  order  to  see  how  their 
wealth  will  be  distributed  after  the  lapse  of  10  years,  consider  first  what  will  be  their  condition 
at  some  earlier  epoch,  say  at  the  end  of  the  fifth  year. 

"We  may  admit  that  a  certain  trader  A  will  then  only  possess  a  capital  of  £100,  while 
another  may  possess   £100,000. 

"Now  if  a  certain  cause  of  gain  or  loss  comes  to  operate,  what  will  happen? 

"For  instance:  Let  the  price  of  an  article  in  which  both  A  and  H  have  invested  their  capital, 
rise  or  fall.  Then  it  will  be  evident  that  if  the  sain  or  loss  of  A  be  L'lO.  that  of  15  will  not  be 
£10,  but  £10,000;  that  is  to  say,  the  effect  of  this  cause  will  not  he  independent  of  the  capital. 
but  proportional  to  it." 

J.  C.  Kapteyn,  Skew  Frequency  Curves  in  Biology  and  Statistics,  p.  13. 


350  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

The  reason  for  this  peculiarity  of  the  fit  to  the  cumulative  distribution 
becomes  clear  when  we  remember  that  the  least-squares  straight  line  may 
easily  deviate  widely  from  the  first  datum  point  while  a  straight  line  giving 
the  same  number  of  income  recipients  as  the  data  must  necessarily  pass 
through  the  first  datum  point.1 

A  straight  line  fitted  in  such  a  manner  that  the  total  number  of  per- 
sons and  total  amount  of  income  correspond  to  the  data  for  these  items 
gives  what  seems  a  much  more  intelligible  fit.  Charts  28B  to  28G  show 
cumulative  United  States  frequency  distributions  from  the  income-tax 
returns  for  the  years  1914  to  1919  on  a  double  log  scale  (Professor  Pareto's 
suggestion).  Two  straight  lines  are  fitted  to  each  distribution— one  a 
solid  least-squares  line  fitted  to  the  cumulative  data  points  and  the 
other  a  dotted  line  so  fitted  that  the  total  number  of  persons  and  total 
amount  of  income  correspond  to  the  data  figures.  While  the  least-squares 
line  may  appear  much  the  better  fit  to  these  cumulative  data,  a  mere 
glance  at  Tables  28B  to  28G  will  reveal  the  fact  that  such  a  line  is,  to 
say  the  least,  a  less  interpretable  fit  to  the  non-cumulative  distribution. - 
It  is,  of  course,  evident  that  neither  line  is  in  any  year  a  sufficiently  good 
fit  to  the  actual  non-cumulative  distribution  to  have  much  significance. 
No  mathematics  is  necessary  to  demonstrate  this.3 

1  e.  g.  in  the  case  of  Prussia,  1886,  the  first  datum  point  is  x  =  "over300M"  and  y  =  54,30!? 
persons. 

-  Professor  Warren  M.  Persons  discussed  the  fit  of  the  least-squares  straight  line  to  Professor 
Pareto's  Prussian  data  for  1892  and  1902  in  the  Quarterly  Journal  of  Economics,  May,  1909, 
and  demonstrated  the  badness  of  fit  of  that  line  to  those  data. 

3  The  income  returned  for  the  years  1914  and  1915  was  estimated  from  the  number  of  re- 
turns.    Income  is  not  given  in  the  reports  for  those  years. 

In  fitting  straight  lines  to  the  data  of  Tables  28B  to  28G  the  lowest  income  interval  (in 
which  married  persons  making  a  joint  return  are  exempt)  has  always  been  omitted.  To  have 
included  in  our  calculations  these  lowest  intervals  would  have  increased  still  further  the  bad- 
ness of  the  fit  in  the  other  intervals. 


S 


PARETO'S  LAW 


351 


CHART  28  B 

UNITED  STATES   INCOME  TAX  RETURNS 

1914 

CUMULATIVE  FREQUENCY  DISTRIBUTION 

AND 

- 1,000,000 

FITTED  (Least  Squares)  STRAIGHT  LINE 
Scales   Logarithmic. 

- 100,000 

^ 

^V 

- 10,000 

^K 

z 

| 

>~. 

-  1,000  ° 

a 
w 

ca 

2 

>j"-.. 

100 

^On*' 

-10 

2 

il 

3     4     5 

-l-X-i.— 

INCOME  IN  THOUSANDS  OF  DOLLARS 
10               20       30    40  50              100              200      300  400  500          1,000          2,000    3.000 
1      1                  1                   iii,                   |                                     I 

352  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


-  100,000 


CHART  28C 


1,000,000 


10,000  2 


o 

as 

1.000   g 

S 

se 


100 


10 


UNITED  5TATE5  IMCOME  TAX  RETURNS 
1915 

CUMULATIVE  FREQUENCY  DISTRIBUTION 

AMD 

FITTED  Ueast  Squares)  STRAIGHT  LINE 


Scales    Logarithmic 


INCOME  IN  THOUSANDS  OF  DOLLARS 
2         3     4     5  10  20       30    40  50  100  200     300  400500  1,000         2.00U 

'       I      '  I  I  |       |      |  '  i.ii 


,* 


PARETO'S  LAW 


353 


(HART  2ND 

UNITED  STATES  INCOME  TAX  RETURNS 

1916 

CUMULATIVE  FREQUENCY  DISTRIBUTION 

AND 

-1,000,000 

FITTED  (Least  Squares)  STRAIGHT  LINE 
Scales  Logarithmic 

-100,000 

^ 

'•Nu 

- 10,000  g 

a. 

§ 

o 

^kN, 

OS 
■  1,000  w 

B3 

z 

^^S.^* 

-100 

>/■-.. 

-10 

INCOME  IN  THOUSANDS  OF  DOLLARS 

2        3     4    5 

10 

20 

30 

40   50               11)0             200      300  400  500           1,000           2000  30004O005O00 

354  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


•  1,000,000 


- 100,000 


10,000 


1,000 


-100 


-10 


CHART  28 E 


UNITED  5TATE5   INCOME  TAX  RETURNS 
1917 

CUMULATIVE  FREQUENCY  DISTRIBUTION 

AND 

FITTED  (Least  Squares)  STRAIGHT  LINE 
Scales  Logarithmic 


INCOME  IN  THOUSANDS  OF  DOLLARS 
3     4     5  10  20       30    40  50  100  200      300  400  500  1,000         2,000  3,000  4,000 

'       '      '  '  '  '       '      '  '  ,ii,  i  ■  i       i      . 


S 


PARETO'S  LAW 


355 


CHART  28F 


- 1,000,000 


- 100,000 


- 10,000 

<n 
z 

a 

9 
g 

as 

■  1.000  O 

as 
u 

05 


-100 


■10 


UNITED  STATES  INCOME  TAX  RETURNS 
ISIS 

CUMULATIVE   FREQUENCY  DISTRIBUTION 

AND 

FITTED  (Least  Squares)  STRAIGHT  LINE 
Scales  Lcjgarilhmic 


3     4     5 

■      ■ 


10 


INCOME  IN  THOUSANDS  OF  DOLLARS 
20      30    40  50  100  200     300  400  500 


-x. 


-* — ■- 


M 


1,000 


-t. 


2.00(1  3,000 

l  I 


356  PERSONAL  DISTRIBUTION  OF  INCOME  IN  LI.  S. 


CHART  28 G 

UNITED  STATES  INCOME  TAX  RETURNS 

1919 

CUMULATIVE  FREQUENCY  DISTRIBUTION 

AND 

-  1.000,000                      ^. 

FITTED  (Least  Squares)  STRAIGHT  LINE 
Scales  Logarithmic. 

-  100,000 

-  10,000g 

\v 

OS 

<*v 

o 

as 

-1,000  « 

03 

s 

9 

z 

N^s 

-100 

>s>» 

-10 

o^/v    ^% 

2         3      4     5 

10 

INCOME  IN  THOUSANDS  OF  DOLLARS 

20       30    40  50             100            200     300  400500          1,000         2,000    3,000 

PARETO'S  LAW 


357 


TABLE  28B 


(XITED  STATES  INCOME-TAX  RETURNS,  1914 


A 

B 

C 

Income  class 

U.  S.  in- 
come-tax 
returns 

Least-squares 
straight  line 

Straight  line 

giving 
correct  total 
returns  and 

income 

Per 
cent 

A  is 
of  B 

Per 

cent 

\  is 

of  C 

$      3,000-$      4,000 

(82,754) 

4,000-        5,000 

66,525 

101,241 

84,683 

65 . 7 

78.6 

5,000-      10,000 

127,448 

160,545 

115,347 

70.4 

110.5 

10,000-      15,000 

34,141 

38,630 

32,716 

ss.4 

104.4 

15,000-      20,000 

15,790 

15,853 

14,102 

99.6 

112.0 

20,000-      25,000 

8,672 

8,230 

7,589 

105 . 4 

114.3 

25,000-      30,000 

5,483 

4,879 

4,631 

112.4 

118.4 

30,000-      40,000 

6,008 

5,380 

5,267 

111.7 

114.1 

40,000-      50,000 

3,185 

2,793 

2,835 

114.0 

112.3 

50,000-    100,000 

5,161 

4,430 

4,756 

11(1.5 

108.5 

100,000-    150,000 

1,189 

1,065.5 

1,241 

lilt) 

95.8 

150,000-    200,000 

406 

437.3 

535 

92 .  S 

75 . 9 

200,000-    250,000 

233 

227.1 

288 . 1 

102.6 

80.9 

250,000-    300,000 

130 

134.6 

175.5 

96.6 

74.1 

300,000-    400,000 

147 

14S.46 

199.9 

99.0 

73.5 

400,000-    500,000 

69 

77.06 

107.6 

89.5 

64.1 

500,000-1,000,000 

114 

122.20 

180.4 

93.3 

63 . 2 

1,000,000  and  over 

60 

62.78 

107.5 

95.6 

55.8 

Total  (over  $4,000) 

274,761 

344,256.00 

274,761.0 

358 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


TABLE  28C 


UNITED  STATES  INCOME-TAX  RETURNS,  1915 


A 

B 

C 

Income  class 

U.  S.  in- 
come-tax 

Least- 
squares 

Straight  line 

giving 
correct  total 

Per 

cent 
A  is 
of  B 

Per 

cent. 
A  is 
of  C 

returns 

straight  line 

returns  and 

income 

$        3,000- 

$      4,000 

(69,045) 

4,000- 

.5,000 

58,949 

92,064 

68,540 

64.0 

86.0 

5,000- 

10,000 

120,402 

154,507 

119,634 

77.9 

100.6 

10,000- 

15,000 

34,102 

40,358 

33,013 

84.5 

103.3 

15,000- 

20,000 

16,475 

17,406 

14,724 

94.7 

111.9 

20,000- 

25,000 

9,707 

9,372 

8,121 

103.6 

119.5 

25,000- 

30,000 

6,196 

5,716 

5,050 

108.4 

122.7 

30,000- 

40,000 

7,005 

6,508 

5,875 

107.6 

119.2 

40,000- 

50,000 

4,100 

:  1,503 

3,241 

117.0 

126.5 

50,000- 

100,000 

6,847 

5,880 

5,65:; 

116.4 

121.1 

100,000- 

150,000 

1,793 

1,536 

1,560 

116.7 

114.9 

150,000- 

200,000 

724 

662.5 

695.4 

109.3 

104.1 

200,000- 

250,000 

386 

356.6 

383.8 

10S.2 

100.6 

250,000- 

300,000 

216 

217.5 

23S .  6 

99.3 

90.5 

300,000- 

400,000 

254 

217.7 

277 . 6 

102.5 

91.5 

400,000- 

500,000 

122 

133.3 

153.2 

91.5 

79.6 

500,000- 

1,000,000 

209 

223.  S 

267.1 

93.4 

7S.2 

1,000,000; 

uid  over 

120 

133.6 

177.3 

89.8 

67.7 

Total  (over  $4,000) 

267,607 

338,825.0 

267,607.0 

y 


PARETO'S  LAW 


359 


TABLE  28D 


UNITED  STATES  INCOME-TAX   RETURNS,   1916 


A 

B 

c 

U.  S.  in- 
come-tax 

returns 

-  raighl  line 

P« 

Pi  1 

Income  class 

Least-squares 
straight  lirx- 

giving  correct 
total  returns 

at 
A  is 

cent 
A  i. 

and  income 

of  B 

of  C 

1        3,000-$      4,000 

(85,122 

1,000           5,000 

72,027 

139,096 

86,588 

51.8 

83  2 

5,000         o.ooo 

52,020 

84,759 

54,221 

01     1 

0  1  0 

6,000         7,000 

170 

5:1.5.;:; 

36,899 

0  1    5 

os  8 

7,0!  in         8,000 

26, !  U 

39,846 

20,510 

66   1 

99.7 

8,000-        0,000 

19,9.7.1 

2  '.202 

19,801 

68.1 

100.8 

9,000-      10,000 

15,051 

22.529 

15,445 

69.5 

101.3 

10,000-      15,000 

45,309 

60,668 

12,879 

71    7 

105  7 

15,000-      20,000 

22.01S 

26,120 

19,311 

86  6 

117.1 

20,000        25.000 

12,05:; 

11,011 

10,726 

92.2 

120  s 

25,000        30,000 

s.055 

8,558 

0,705 

01    1 

120.1 

30,000-      40,000 

10,068 

9,731 

7,854 

103  5 

128  2 

40,000-      50,000 

5,611 

5,202 

1,362 

107.2 

128  6 

50,000-      00,000 

3,621 

3,189 

2,730 

113 . 5 

132.6 

60,000        70,000 

2.5  is 

2.120 

1,857 

110  s 

107  2 

70,000        80,000 

1,787 

1,499 

1,334.8 

ll.l  2 

133  o 

80,000        90,000 

1,422 

1,102 

ooo  s 

12:)  o 

1  12  7 

90,000-     100,000 

1,074 

847 

777  5 

126  s 

138.1 

100,000-    150,000 

2,900 

2,282.1 

2,158.  1 

127    1 

101    1 

150,000-    200.000 

1,284 

982  0 

972.1 

130.7 

132.1 

200,000-    250,000 

726 

52S .  2 

500.9 

137   I 

134.5 

250,000-    300,000 

127 

321.9 

337.6 

1.12   0 

126.5 

300,000-   400,000 

169 

6.1 

395.3 

L23.1 

lis   0 

400,000-    500,000 

215 

196  s 

219  o 

124.5 

111.6 

500,000-1,000,000 

376 

329.6 

:;s7  i 

111   1 

07    1 

1,000,000  1.500.000 

97 

35  83 

108.7 

113.0 

89  2 

1.500,000-2,000,000 

12 

36.96 

IS     VS 

110  6 

85  o 

2,000,000  3,000,000 

.11 

31   os 

11    10 

loo  3 

76.9 

3,000,000-4,000,000 

14 

13.77 

19  91 

0)1   7 

70.3 

4,000,000  5.0011.000 

9 

7    10 

11.05 

121   6 

si     1 

5.(100,000  and  over 

10 

19.76 

32  s7 

50   0 

30   1 

Total  (over  $4,000 

344,279 

510,374.00 

344,279.00 

360 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


TABLE  28E 

UNITE 

-D  STATES  1 
A 

NCOME-TAX 

:  RETURNS,  : 
n 

L917 

TT   S 

13 

Straight  line 

Per 

Per 

Income  class 

income-tax 
returns 

Least-squares 
straight  line 

giving  correct 
total  returns 

cent 
A  is 

cent 
A  is 

and  income 

of  B 

of  C 

S      1,000-$      2,000 

(1,640,758) 

2,000-        2,500 

480,486 

618,069 

517,512 

77.7 

92.8 

2,500-        3,000 

358,221 

367,835 

284,620 

97.4 

125.9 

3,000-        4,000 

374,958 

407,366 

376,117 

92.0 

99.7 

4,000-        5,000 

185,805 

212,569 

184,854 

87.4 

100.5 

5,000-        6,000 

105,988 

126,507 

111,097 

83.8 

95.4 

6,000-       7,000 

64,010 

82,746 

73,355 

77.4 

87.3 

7,000-        8,000 

44,363 

57,357 

51,285 

77.3 

86.5 

8,000-        9,000 

31,769 

41,556 

37,362 

76.4 

85.0 

9,000-      10,000 

24,536 

31,551 

28,551 

77.8 

85.9 

10,000-      11,000 

19,221 

24,097 

21,900 

79.8 

87.8 

11,000-      12,000 

15,035 

19,412 

17,747 

77.5 

84.7 

12,000-      13,000 

12,328 

15,707 

14,440 

78.5 

85.4 

13,000-      14,000 

10,427 

12,751 

11,761 

81.8 

88.7 

14,000-      15,000 

8,789 

10,709 

9,909 

82.1 

88.7 

15,000-      20,000 

29,896 

34,161 

31,891 

87.5 

93.7 

20,000-      25,000 

16,806 

17,825 

16,876 

94.3 

99.6 

25,000-      30,000 

10,571 

10,609 

10,159 

99.6 

104.1 

30,000-      40,000 

12,733 

11,749 

11,385 

108.4 

111.8 

40,000-      50,000 

7,087 

6,130 

6,021 

115.6 

117.7 

50,000-      60,000 

4,541 

3,649 

3,622 

124.4 

125.4 

60,000-      70,000 

2,954 

2,387 

2,391 

123.8 

123.5 

70,000-      80,000 

2,222 

1,653.5 

1,672 

134.4 

132.9 

80,000-      90,000 

1,539 

1,198.5 

1,217.9 

128.4 

126.4 

90,000-    100,000 

1,183 

910.0 

930.8 

130.0 

127.1 

100,000-    150,000 

3,302 

2,384.4 

2,469.5 

138.5 

133.7 

150,000-    200,000 

1,302 

985.2 

1,039.6 

132.2 

125.2 

200,000-    250,000 

703 

514.1 

550.5 

136.7 

127.7 

250,000-    300,000 

342 

305.9 

330.8 

111.8 

103.4 

300,000-    400,000 

380 

338.9 

371.2 

112.1 

102.4 

400,000-    500,000 

179 

176.8 

196.3 

101.2 

91.2 

500,000-    750,000 

225 

199.96 

225 . 56 

112.5 

99.8 

750,000-1,000,000 

90 

82.61 

94.97 

108.9 

94.8 

1,000,000-1,500,000 

67 

68.77 

80.51 

97.4 

83.2 

1,500,000-2,000,000 

33 

28.42 

33.90 

116.1 

97.3 

2,000,000-3,000,000 

24 

23.65 

28.71 

101.5 

83.6 

3,000,000-4,000,000 

5 

9.77 

12.10 

51.2 

41.3 

4,000,000-5,000,000 

8 

5.10 

6.40 

156.9 

125.0 

5,000,000  and  over 

4 

12.42 

16.25 

32.2 

24.6 

Total  (over  $2,000) 

1,832,132 

2,123,640.00 

1,832,132.00 

s 


PARETO'S  LAW 


361 


TABLE  28F 


UNITED  STATES  INCOME-TAX  RETURNS,  1918 


A 

B 

C 

U.S. 

income-tax 

returns 

Straight  line 

Per 

Per 

Income  class 

Least-squares 
straight  line 

giving  correct 
total  returns 

cent 

A  is 

cent 

A  is 

and  income 

of  B 

of  C 

$      1,000-8      2,000 

(1,516,938) 

2,000-        3,000 

1,496,878 

1,375,372 

1,470,366 

108.8 

101.8 

3,000-        4,000 

610.095 

537,892 

566,044 

113.4 

107.8 

4,000-        5,000 

322,241 

269,674 

280.477 

lit  :, 

114.9 

5,000-        6,000 

126,554 

155,513 

160,300 

81   4 

78.9 

6,000-        7,000 

79,152 

99,102 

101,389 

79.9 

78.1 

7,000-        8,000 

51,381 

07,ls  1 

0S.25S 

76.5 

75  3 

8,000-        9,000 

35,117 

17,740 

48,266 

73.6 

72.8 

9,000-      10,000 

27,152 

35,628 

35,795 

70.2 

75.9 

10,000-      11,000 

20,414 

26,793 

26,832 

70.2 

76.1 

11,000-      12,000 

16,371 

21,283 

21,231 

76.9 

77.1 

12,000-      13,000 

13,202 

16,999 

16,873 

77.7 

78.2 

13,000-      14,000 

10,882 

13,638 

13,515 

79.  s 

80.5 

14,000-      15,000 

9,123 

11,328 

11,105 

80  5 

81.7 

15,000-      20,000 

30,227 

35,214 

34,4s0 

85  8 

87.7 

20,000-      25,000 

16,350 

17,05  1 

17,097 

92.6 

95.6 

25,000-      30,000 

10,206 

10,181 

9,762 

100.2 

101  5 

30,000-      40,000 

11,887 

10,886 

10,330 

109.2 

115  0 

40,000-      50,000 

6,449 

5,458 

5,121 

lis  2 

125  9 

50,000-      60,000 

3,720 

3,147 

2,928 

US. 2 

127.0 

00,000-      70,000 

2,441 

2,000 

1,852 

121.7 

131   s 

70,000-      80,000 

1,691 

1,359.5 

1,246 

124.4 

135.7 

80,000-      90,000 

1,210 

000.2 

SSI.  4 

125.2 

137.3 

90,000-    100,000 

934 

721.0 

053.7 

12.1.5 

142 .9 

100,000-    150,000 

2,358 

1.S22  3 

1,036.3 

129.4 

141   1 

150,000-    200,000 

866 

712.7 

629.8 

121.5 

137  5 

200,000-    250,000 

401 

357  3 

312.1 

112.2 

128  5 

250,000      300, 000 

217 

200 . 0 

17S.3 

119.9 

138. 5 

300,000-    400,000 

260 

220.3 

188.7 

118.0 

137.8 

400,000-    500,000 

122 

110.5 

93 .  :^ 

110.4 

130.4 

500,000-    750,000 

132 

119.28 

99.70 

110.7 

132  4 

750,000-1,000,000 

40 

46.66 

38.30 

98.6 

119.9 

1,000,000-1,500,000 

33 

36.88 

29  ss 

S9.5 

110.4 

1,500,000-2,000,000 

16 

14.42 

11.50 

111.0 

139.1 

2,000,000-3,000,1  too 

11 

11.40 

8.96 

96.5 

122.8 

3,000,000-4,000,000 

4 

4.46 

3.44 

89  7 

110  :\ 

4,000,000-5,000,000 

9 

2.24 

1.71 

89.3 

117.0 

5,000,000  and  over 

1 

4.86 

3.60 

20  6 

27  s 

Total  (over  $2,000) 

2,908,176 

2,769,408.00 

2,908,176.00 

3G2 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


TABLE  28G 


UNITED  STATES  INCOME-TAX  RETURNS,  1919 


A 

B 

C 

U.  S. 

income-tax 
returns 

Straight  line 

Per 

Per 

Income  class 

Least-squares 

straight  line 

giving  correct 
total  returns 

cent 
A  is 

cent 
A  is 

and  income 

of  B 

of  C 

$      1,000-$      2,000 

(1,924,872) 

2,000- 

3,000 

1,569,741 

1,984,285 

1,673,688 

79.1 

93.8 

3,000- 

4,000 

742,334 

764,739 

660,950 

97.1 

112.3 

4,000- 

5,000 

438,154 

379,330 

333,645 

115.5 

131.3 

5,000- 

6,000 

167,005 

216,921 

193,470 

77.0 

86.3 

6,000- 

7,000 

109,674 

137.278 

123,953 

79.9 

88.5 

7,000- 

8,000 

73,719 

92,511 

84,273 

79.7 

87.5 

8,000- 

9,000 

50,486 

65,403 

60,066 

77.2 

84.1 

9,000- 

10,000 

37,967 

48,583 

44,980 

78  1 

84.4 

10,000- 

11,000 

28,499 

36,386 

33,887 

78.3 

84.1 

11,000- 

12,000 

22,841 

28,796 

27,027 

79.3 

84.5 

12,000- 

13,000 

18,423 

22,921 

21,600 

80.4 

85.3 

13,000- 

14,000 

15,248 

18,329 

17,395 

83.2 

87.7 

14,000- 

15,000 

12,841 

15,181 

14,459 

84.6 

88.8 

15,000- 

20,000 

42,028 

46,868 

45,162 

89.7 

93.1 

20,000- 

25,000 

22,605 

23,249 

22,797 

97.2 

99.2 

25,000- 

30,000 

13,769 

13,294 

13,228 

103.6 

104.1 

30,000- 

40,000 

15,410 

14,084 

14,219 

109.4 

108.4 

40,000- 

50,000 

8,298 

6,986 

7,178 

118.8 

115.6 

50,000- 

60,000 

5,213 

3,994 

4,162 

130.5 

125.3 

60,000- 

70,000 

3,196 

2,528 

2,665 

126  4 

119.9 

70,000- 

80,000 

2,237 

1,704 

1,813 

131.3 

123.4 

80,000- 

90,000 

1,561 

1,205 

1,292 

129.5 

120.8 

90,000- 

100,000 

1,113 

894 

968.3 

124 . 5 

114.9 

100,000- 

150,000 

2,983 

2,240 

2,461.5 

133.2 

121.2 

150,000- 

200,000 

1,092 

863.2 

971.6 

126.5 

112.4 

200,000- 

250,000 

522 

428.1 

490.4 

121.9 

106.4 

250,000- 

300,000 

250 

245.0 

284.4 

102.0 

87.9 

300,000- 

100,000 

285 

259 . 2 

306.0 

110.0 

93.1 

400,000- 

500,000 

140 

128.6 

154.4 

108.9 

90.7 

500,000- 

750,000 

129 

137.32 

168 . 2 

93 . 9 

76.7 

750,000- 

1,000,000 

60 

52.89 

66.4 

113.4 

90.4 

1,000,000- 

1,500.000 

34 

41 .  25 

52.95 

82.4 

64.2 

1,500,000- 

2,000,000 

13 

15.89 

20 .  90 

81.8 

02 . 2 

2,000,000- 

5,000,000 

7 

12.40 

16.68 

56.5 

42.0 

3,000,000  and  over 

11 

12.15 

17.27 

90.5 

63.7 

Total  (over  $2,000) 

3,407,888 

3,929,905.00 

3,407,888.00 

s 


PARETO'S  LAW 


363 


Why  do  the  least-squares  straight  lines  appear  graphically  such  good 
fits  to  the  cumulative  distributions  (for  at  least  the  later  years)  when  a 
merely  arithmetic  analysis  shows  even  this  fit  to  the  cumulative  data  to 
be  so  illusory?  Because  the  percentage  range  in  the  number  of  persons  is  so 
extremely  wide.  The  deviations  of  the  cumulative  data  on  a  double  log 
scale  from  the  least-squares  straight  line  are  minute  when  compared  with 
the  percentage  changes  in  the  data  from  the  smallest  to  the  largest  incomes. 
But  this  is  not  helpful.  The  fact  that  there  are  100,000  times  as  many 
persons  having  incomes  over  $2,000  per  annum  as  there  are  persons 
having  incomes  over  85,000,000  per  annum,  does  not  make  a  theoretical 
reading  for  a  particular  income  interval  of  twenty  or  thirty  per  cent  over 
or  under  the  data  reading  an  unimportant  deviation.  Charting  data  on 
a  double  log  scale  may  thus  become  a  fertile  source  of  error  unless  ac- 
companied by  careful  interpretation.1  This  fact  has  long  been  recognized 
by  engineers  and  others  who  have  had  much  experience  with  similar  prob- 
lems in  curve  fitting. 

Another  matter  of  some  importance  must  be  noted  here.  The  devia- 
tions of  the  data  from  the  straight  lines  mighl  be  much  less  than  they  are 
and  yet  constitute  extremely  bad  fits.  The  data  points  (even  on  a  non- 
cumulative  basis)  do  not  flutter  erratically  from  side  to  side  of  the  fitted  lines; 
they  run  smoothly,  passing  through  the  fitted  line  at  small  angles  in  the  way 
that  one  curve  cuts  <nt<>th< r.  Now,  in  curve  fitting,  such  a  condition  always 
strongly  suggests  that  the  particular  mathematical  curve  used  is  not  in 
any  sense  the  "law"  of  the  data. 

2.  Are  the  slopes  of  the  straight  lines  fitted  to  income  data 
from  different  times  and  places  similar  in  any  significant  degree? 

1  Tho  dangers  of  fitting  curves  with  such  a  combination  as  a  cumulative  distribution  and 
a  double  log  scale,  withoul  further  analysis,  is  well  illustrated  by  the  results  Professor  Pareto 
obtained  tor  Oldenburg.  To  the  Oldenburg  data  he  fitted  the  rather  complicated  equation 
log  N  =  log  A  —  a  log  I  x  +  a)  —  8x  and  obtained  the  following  results.  (The  value  Pareto 
gives  for  ,1  namely  .0000631,  does  not  check  with  his  calculated  figures  given  below.  |3  = 
.001)0271  is  evidently  what  he  intended.) 


X 

Logarithms  of  X 

marks  (over) 

Observed 

Calculated 

A 

300 

600 

900 

1,500 

3,000 

6,000 

9,000 

15,300 

30,000 

5  1 .309 

24,043 

16,660 

9,631 

3,502 

994 

No 

1  10 

25 

1  73  1'.  > 
4.3810 
4.2217 
3  9837 
:;  54  13 

2  9974 
2.6484 
2. 1461 
L.3979 

1. 7349 
4.4368 
4 .  231 1 1 
3  9409 
3  5008 
2.9997 
2.6671 
2. 1838 
1.3364 

— .0558 
—.0086 
+  .0428 
+  .0435 

—  .0023 
-.0187 

H377 
+  .0615 

(From  Coins  d'Economie  Politique,  vol.  II,  p.  307.) 

The  above  table  may  give  the  reader  a  vague  idea  that  the  tit  is  rather  g 1.     However, 

from  the  above  table  the  following  table  may  he  directly  derived: 
(Note  concluded  page  364.) 


364 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


If  income  distributions  charted  on  a  double  log  scale  not  only  cannot 
be  approximately  represented  by  straight  lines,  but  also  differ  radically 

(Note  1  page  363  concluded.) 


Number  of  persons 

Income  in  marks 

Actual 

Computed 

of  computed 

300-      600 

600-      900 

900-   1,500 

1,500-  3,000 

3,000-  6,000 

6,000-  9,000 

9,000-15,300 

15,300-30,000 

Over  30,000 

30,266 

7,383 

7,029 

6,129 

2,508 

549 

305 

115 

25 

26,969 

10,342 

8,270 

5,560 

2,169 

534 

312 

131 

22 

112.2 

71.4 

85.0 

110.2 

115.6 

102.8 

97.8 

87.8 

113.6 

Total 

54,309 

54,309 

100.0 

The  fit  no  longer  impresses  one  as  quite  so  good.     See  Chart  28H  below. 


■/OO, 


•70000 


■1000 


I 
I 


1 


■too 


3 

i 


CHART  28  H 


OLDENBURG 


INCOME  TAX  RETURNS 
1890 
CUMULATIVE  FREQUENCY  DISTRIBUTION 
WITH  TWO  FITTED   CURVES 

(t)  log  y=  9.0077- I.63ZI  log  z  (least  squares  straight  line) 
ft)  log  y  =3.72204 -1. 465  log  (x+220)  - . 0000274 x 
(Pareto's  Seconal approx/rr?a//on.) 

Scales  Logarithmic 


6 

i 


/rtCOME    ///  HUTiDFEDS  OF  MARKS 
9  75  30  60       90 


30 

-J- 


60 
_l 


PARETO'S  LAW 


365 


in  shape,  it  is  of  course  not  of  great  importance  whether  the  straight  lines 
fitted  to  such  data  from  different  times  and  places  have  or  have  not  ap- 
proximately constant  slopes.  For  example,  a  comparison  of  Chart  28C 
showing  the  cumulative  distribution  of  United  States  income-tax  returns 
for  1915  on  a  double  log  scale  and  Chart  28 F  showing  similar  data  for 
1918,  makes  it  plain  that,  even  were  the  slopes  of  the  fitted  straight  lines 
for  the  two  years  identical,  the  data  curves  would  still  be  so  different  as 
to  make  the  similarity  of  slope  of  the  fitted  lines  of  almost  no  significance.1 
In  considering  slopes,  let  us  examine  further  both  the  data  and  the 
fitted  lines  for  these  two  years  1915  and  1918.  Tables  281  and  28J  give 
some  numerical  illustrations  of  the  differences  between  the  distributions 
for  the  two  years.  Table  281  gives  the  number  of  returns  in  each  income 
interval  each  year  and  the  percentages  that  the  1918  figures  are  of  the 
1915  figures. 

TABLE  281 


COMPARISON  OF  UNITED  STATES  INCOME-TAX  RETURNS  FOB 

1915  AND  1918 


Income  class 

Number  of  returns 

Ratio  of  1918 

1915 

1918 

to  1915 

$      4,000  a-$    5,000 

58,949 

120,402 

34,102 

16,475 

9,707 

6,196 

7,005 

1,100 

6,847 

1,793 

724 

3X6 

216 

25 1 

122 

209 

120 

322,241 

319,356 

69,992 

30,227 

16,350 

10,206 

11,887 

6,4  19 

9,996 

2,358 

S66 

401 

247 

260 

122 

ITS 

67 

5.4664 

5,000-      10,000 

2.6524 

10,000-      15,000 

15,000-      20,000 

2.0524 

1.8347 

20,000-      25,000 

1.6844 

25,000-      30,000 

1.6472 

30,000-      40,000 

1.6969 

40,000-      50,000 

1 . 5729 

50,000-    100,000 

1.45!  19 

100,000-    150,000 

1.3151 

150,000-    200,000 

1 . 1961 

200,000-    250,000 

1 . 0389 

250,000-    300,000 

1    1435 

300  000-    400  OIK) 

1  0236 

400,000-    500,000 

1  0000 

500,000-1,000,000 

8517 

1,000,000  and  over 

.5583 

a  The  $3, 000-84, 000  class  is  not  included,  as  in  1915  married  persons  in  that  class  were 
exempted  while  in  1918  they  were  not. 


The  change  as  we  pass  from  the  $4,000-$5,000  interval,  where  the  1918 
figures  are  nearly  five-and-a-half  times  the  1915  figures,  to  the  intervals 
above  $500,000,  where  the  1918  figures  are  actually  less  than  the  1915 
figures,  illustrates  the  great  and  fundamental  difference  between  the  slopes 
of  the  two  distributions.     However,  such  a  comparison  of  unadjusted 

1  Compare  also  the  deviations  from  the  fitted  lines  as  given  in  Tables  28< '  and  28F. 


366 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


money  intervals,  while  it  throws  into  relief  the  differences  in  slope  of  the 
two  distributions,  is  by  no  means  as  enlightening  for  purposes  of  exhibiting 
their  other  essential  dissimilarities  as  a  comparison  of  the  two  sets  of  data 
after  they  have  been  adjusted  for  changes  in  average  (per  capita)  income 
and  changes  in  population.  Table  28 J  gives  some  comparisons  between  the 
data  for  the  two  years  and  between  the  fitted  lines  for  the  two  years  on 
such  an  adjusted  basis.  Two  intervals,  one  in  the  relatively  low  income 
range  and  the  other  in  the  high  income  range,  are  used  to  illustrate  the 
essentially  different  character  of  the  distributions  for  the  two  years. 

TABLE  28J 


COMPARISONS  OF  UNITED  STATES  INCOME-TAX  RETURNS  FOR  THE  YEARS  1915  AND 
1918  ADJUSTED  FOR  CHANGES  IN  AVERAGE  (PER  CAPITA)  INCOME  AND  CHANGES 
IN  POPULATION 


ACTUAL  INCOME-TAX  DATA 


Income  intervals 

Number  of  returns 
(1)                           (2) 

Fraction  of  population 
(3)                        (4) 

Ratio  of 

Column  (4) 

to  Column  (3) 

1915 

1918 

1915 

191S 

Between  12  and  13 
times  average  income 

21,190 

31,197 

.00021099 

.00029!)!."". 

1.4193 

Between  1,200  and  1,300 

times  average  income 

43.85 

20  37 

. 0000004366 

OOOOOOl'.t:,:. 

.4478 

Over  12  times  average 
income 

248,600 

271,452 

.002 17536 

.00260561 

1   0526 

Amount  in  dollars 

Per  cent  of  total  income 

Over  12  times  average 
income 

1915 
$4,283,010,735 

1918 
$5,312,832,516 

1915 
11.9% 

191S 
8.7% 

.  7311 

LEAST-SQUARES  STRAIGHT  LINES 


Income  intervals 

Number  of  returns 
(1)                           (2) 

Fraction  of  population 
(3)                        (4) 

Ratio  of 
Column  (4) 
to  Column  (3) 

1915 

1918 

1915 

1918 

Between  12  and  13 
times  average  income 

32,886 

41,730 

.00032745 

.00040056 

1 . 2233 

Between  1,200  and  1,300 
times  average  income 

47.63 

17.10 

.0000004743 

.0000001641 

.3460 

STRAIGHT  LINES  FITTED  TO  GIVE  THE  SAME  TOTAL  NUMBER  OF  RETURNS  AND  THE 
SAME  TOTAL  INCOME  AS  THE  INCOME-TAX  DATA 


Income  intervals 

Number  of  returns 
(1)                           (2) 

Fraction  of  population 
(3)                       (4) 

Ratio  of 

Column  (4) 

to  Column  (3) 

1915 

litis 
42,460 

1915 

191S 

Between  12  and  13 

times  average  income 

24,510 

. 00024405 

. 00040756 

1 . 6700 

Between  1,200  and  1.300 
times  average  income 

54.73 

14.15 

. 0000005450 

.0000001358 

.2492 

<* 


PARKTO'S  LAW 


367 


NOTES  TO  TABLE  28J 
"Average  Income"  Intervals 


1915 

1918             ■" 

S        358 

1,296 

4.654 

129,600 

■165, 400 

586 

12  times  average  income 

13  "             "           "        

:  i 132 

7.618 

1  200     "             "           "        

703  200 

l  300     " 

761.  MID 

Equations  of  Fitted  Straight  Lines  on  a  Cumulative  Double  Log  B 


hues 

Lines  giving  correct  total 

number  of  returns  and 

total  income 

1914 

y 
y 
y 
y 
y 
y 

=  11.153322  —  1.559256  \ 
=  10  643299       1  -119579  \ 
=  10.839435  —  1   424638  \ 

=  11  .  111!  .116      -   1    53 6  x 

=  12.033697—  1  .693823  x 
=  12.320963—  1.734802x 

y  =  111  557242   —  1   420936  x 

1915                       

v  =  10  202382  —  1   32 

1916 

v  =  in  212702     -  1 .298088  \ 
v  =  11.170980—  1    186817  \ 
v  =  12  202452—  1  .738497  s 
y  =  12 . 036155  —  1 . 6672 5 3  i 

1917                         

1919                    

Tabic  28J  needs  little  discussion.  In  the  section  treating  actual  income- 
tax  data  we  notice  that  while  the  adjusted  number  of  returns  in  the  lower 
income  interval  '  increased  41.93  per  cent  from  1915  to  1918,  the  adjusted 
number  of  returns  in  the  upper  income  interval  2  decreased  55.22  per  cent. 
Moreover,  while  the  adjusted  total  number  of  returns  above1  the  "  12-times- 
average-income"  point  increased  5.20  per  cent,  the  adjusted  amount  of 
income  reported  in  these  returns  decreased  26.89  per  cent. 

Such  figures  suggest  a  rather  radical  change  in  the  distribution  of  in- 
come during  this  short  three-year  period.  Similar  conclusions  may  be 
drawn  from  the  figures  for  1  he  two  pairs  of  fitted  lines,  though  we  must 
of' course  remember  that  these  lines  describe  only  very  inadequately  the 
actual  data.  The  lines  so  fitted  as  to  give  each  year  the  same  total  number 
of  returns  and  total  amount  of  income  as  the  data  for  that  year  yield 
sensational  results.  While  the  adjusted  number  of  returns  in  the  lower 
income-interval  increased  67  per  cent,  the  adjusted  number  of  returns 
in  the  upper  income-interval  decreased  75. OS  per  cent. 

Finally,  it  has  been  suggested  that  changes  in  the  characteristics  of  the 
tax-income-distribution  in  the  United  States  from  L915  to  1918  may  be 
accounted  for  as  the  results  of  the  increase  in  the  surtax  rates  with  1917. 
We  do  not  believe  any  large  part  of  these  changes  can  be  so  accounted 
for.  Notwithstanding  the  fact  that  the  country  entered  the  European 
war  during  the  interval,  the  difference  between  the  1915  distribution  and 
the  1918  distribution  in  the  United  States,  extreme  as  it  is.  cannot  be  said 
to  be  unreasonably  or  unbelievably  great.  Even  the  changes  in  the  slope 
of  the  least-squares  line  are  not  phenomenal.  Pareto's  Prussian  figures 
contain  fluctuations  in  slope  from  — 1.G0  to  -1.89  while  the  slope  of  the 
least-squares  straight  line  fitted  to  his  Basle  data  is  only — 1.25.     The 

1  Between  12  and  L3  times  the  average  income  (per  capita)  each  year. 

-  Between  1,200  and  1,300  times  the  average  income  (per  capita)  each  year. 


368  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

slopes  of  the  least-squares  straight  lines  fitted  to  the  American  data  are 
—1.42  for  1915  and  —1.69  for  1918. 

3.  If  the  upper  income  ranges  (or  "tails")  of  income  distributions 
were,  when  charted  on  a  double  log  scale,  closely  similar  in  shape, 
would  that  fact  justify  the  assumption  that  the  lower  income  ranges 
were  likewise  closely  similar? 

Before  attempting  to  answer  the  above  question,  let  us  summarize  the 
case  we  have  just  made  against  believing  the  "tails"  significantly  similar. 
We  can  then  discuss  how  much  importance  such  similarity  would  have 
did  it  exist. 

We  have  found  upon  examination  that  the  approximation  to  straight 
lines  of  the  tails  of  income  distributions  plotted  on  double  log  scales  is 
specious;  that  the  slopes  of  the  fitted  straight  lines  differ  sufficiently  to 
produce  extreme  variations  in  the  relative  number  of  income  recipients 
in  the  upper  as  compared  with  the  lower  income  ranges  of  the  tails; 
that  the  upper  and  lower  income  ranges  of  the  actual  data  for  different 
times  or  places  tell  a  similar  story  of  extreme  variation;  and  that  the 
irregularities  in  shape  of  the  tails  of  the  actual  data,  entirely  aside 
from  any  question  of  approximating  or  not  approximating  straight  lines 
of  constant  slope,  vary  greatly  from  year  to  year  and  from  country  to 
country,  ranging  all  the  way  from  the  irregularities  of  such  distributions 
as  the  Oldenburg  data,  through  the  American  data  for  1914,  1915  and  1916 
to  such  an  entirely  different  set  of  irregularities  as  those  seen  in  the  Amer- 
ican data  for  19181. 

At  this  stage  of  the  discussion  the  reader  may  ask  whether  a  general 
appearance  of  approximating  straight  lines  on  a  double  log  scale,  poor  as  the 
actual  fit  may  be  found  to  be  under  analysis,  has  not  some  meaning,  some 
significance.  The  answer  to  this  question  must  be  that,  if  we  were  not  deal- 
ing with  a  frequency  distribution  but  with  a  correlation  table  showing  a 
relationship  between  two  variables,  an  approximation  of  the  regression  lines 
to  linearity  when  charted  on  a  double  log  scale  might  easily  be  the  clue 
to  a  first  approximation  to  a  rational  law;  but  that,  on  the  other  hand,  ap- 
proximate linearity  in  the  tail  of  a  frequency  distribution  charted  on  a  double 
log  scale  signifies  relatively  little  because  it  is  such  a  common  charac- 
teristic of  frequency  distributions  of  many  and  varied  types. 

The  straight  line  on  a  double  log  scale  or,  in  other  words,  the  equation 
y  =  bxm,  when  used  to  express  a  relationship  between  two  variables,  is,  to 
quote  a  well-known  text  on  engineering  mathematics,  "one  of  the  most 
useful  classes  of  curves  in  engineering."  2  In  deciding  what  type  of  equa- 
tion to  use  in  fitting  curves  by  the  method  of  least  squares  to  data  con- 

1  Compare  Charts  28H,  28B,  28C,  28D  and  28F. 

2  P.  Steinmetz,  Engineering  Mathematics,  p.  216. 


PARETO'S  LAW  369 

cerning  two  variables  the  texts  usually  mention  y  =  bxm  as  "a  quite  com- 
mon case."  1  A  recent  author  writes,  "simple  curves  which  approximate 
a  large  number  of  empirical  data  are  the  parabolic  and  hyperbolic  curves. 
The  equation  of  such  a  curve  is  y  =  axb  [y  =  bxm],  parabolic  for  b  positive 
and  hyperbolic  for  b  negative."  2  A  widely  used  text  on  elementary 
mathematics  speaks  of  the  equation  y  =  bxm  as  one  of  "the  three  funda- 
mental functions"  in  practical  mathematics.3  The  market  for  "logarith- 
mic paper"  shows  what  a  large;  number  of  two-variable  relationships  may 
be  approximated  by  this  equation.  Moreover  this  equation  is  often  a 
close  first  approximation  to  a  rational  law.  Witness  "Boyle's  Law."  In- 
deed, sufficient  use  has  not  been  made  of  this  curve  in  economic  discus- 
sions of  two-variable  problems. 

The  primary  reason  why  approximation  to  linearity  on  a  double  log 
scale  has  no  such  significance  in  the  case  of  the  tail  of  a  frequency  distribu- 
tion as  it  often  has  in  the  case  of  a  two-variable  problem  is  because  of 
the  veiy  fact  that  we  are  considering  the  tail  of  the  distribution,  in  other 
words,  a  mere  fraction  of  the  data.  While  frequency  distributions  which 
can  be  described  throughout  their  length  by  a  curve  of  the  type  y  =  bxm  are 
extremely  rare,  a  large  percentage  of  all  frequency  distributions  have  tails 
approximating  straight  lines  on  a  double  log  scale.4  It  is  astonishing  how 
many  homogeneous  frequency  distributions  of  all  kinds  may  be  described 
with  a  fair  degree  of  adequacy  by  means  of  hyperbolas  5  fitted  to  the  data 
on  a  double  log  scale.  Along  with  this  characteristic  goes,  of  course,  the 
possibility  of  fitting  to  the  tails  of  such  distributions  straight  lines  approxi- 
mately parallel  to  the  asymptotes  of  the  fitted  hyperbola.  However  we 
have  by  no  means  adequately  described  an  hyperbola  when  we  have 
stated  the  fact  that  one  of  its  asymptotes  is  (of  course)  a  straight  line  and 
that  its  slope  is  such  and  such.  Had  we  even  similar  information  con- 
cerning the  other  asymptote  also,  we  should  know  little  about  the  hyper- 
bola or  the  frequency  distribution  which  it  would  describe  on  a  double 
log  scale.  The  hyperbola  might  coincide  with  its  asymptotes  and  hence 
have  an  angle  at  the  mode  or  it  might  have  a  very  much  rounded  "top." 
Such  a  variation  in  the  shape  of  the  top  of  the  hyperbola  G  would  generally 
correspond  to  a  very  great  variation  in  the  scatter  or  "inequality"  of  the 
distribution  as  well  as  many  other  characteristics. 

1  D.  P.  Bartlett,  Method  of  Last  S,/mirt  s,  p.  33. 

2  J.  Lipka,  Graphical  and  Mechanical  Computation,  p.  128. 

3  C.  S.  Sliehter,  Elementary  Mathematical  Analysis,  preface. 

4  A  very  large  percentage  of  the  remainder  have  tails  approximating  straight  lines  on  a 
natural  x  log  y  basis. 

6  N.  B.  Not  a  straight  line  on  tin  (Inutile  log  scale,  which  is  a  so-called  hyperbola  on  the 
natural  scale,  but  a  true  conic  section  hyperbola  on  tin  doutilt  In,]  sent, . 

Charts  28K  and  28L  (Earnings  per  Hour  of  318,946  Male  Employees  in  1919)  illustrate 
how  excellent  a  fit  may  often  be  obtained  by  means  of  an  hyperbola  even  though  lifted  only 
by  selected  points.  A  comparison  of  the  least-squares  parabola  and  the  selected-points 
hyperbola  on  Chart  28K  illustrates  also  the  straight-tail  effect. 

6  Compare  Karl  Pearson's  concept  of  "kurtosis." 


370 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


S 


PAKITOS   LAW 


371 


Rough  similarity  in  the  tails  of  two  distributions  on  a  double  log  scale 
by  no  means  proves  even  rough  similarity  in  the  remainder  of  the  dis- 
tributions.   Charts  28M,  28N,  280  and  28P  illustrate  both  cumulatively 


100,000 


u 
10.000J 


1.000  © 

as 


100 


CHART  2S  M 

CUMULATIVE  FREOUEnCY  DISTRIBUTION 
or 
RATES  OF  WAGES  PER  HOUR 

FOR 

7?.23l  MALE  EMPLOYEES 

in   rn  E_ 

SLAUGHTERING  &  MEATPACKING  INDUSTRY 
IM   THE  U.S.  IM  1917. 

sovKt *w» '  i/iaonsunanasaiiTi/tai 
Scales  Logarithmic 


10 


WAGES    IN  CENTS  PER   HOUR 
IS  20  25         30  40  50        60 

1  .ii  .ii 


.372 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  28  N 

FREQUENCY  DISTRIBUTION 

OF 

RATES  OF  WAGES  PER  HOUR 

FOR 

7^,2^l  MALE  EMPLOYEES 

in  THE 

SLAUGHTERING  &MEAT-PACKI11G  INDUSTRY 

IN  THE  U.S.  IN  1917. 

soukc  8/£M0arine&smisrici.  ffuuem&t 

Scales  Logarithmic 

-10,000 

a 

/             X 

s 

/                 \f. 

a. 

/                                       v\ 

-1,00( 

s 

w 

Ed 

J 

b. 
O 
« 

-100 

oa 

s 

-10 

• 

-] 

WAGES    IN   CENTS    PER   HOUR 

10 

15             20          25        30             40          50        60 

I                                 1                                                   1                                   11             ^^L^_ 

and  non-cumulatively  on  a  double  log  scale  two  wages  distributions  whose 
extreme  tails  appear  roughly  to  approximate  straight  lines  of  about  equal 
slope.1  Charts  28M  and  28N  are  from  data  concerning  wages  per  hour 
of  72,291  male  employees  in  the  slaughtering  and  meat-packing  industry 
in  1917; 2  Charts  280  and  28P  are  from  data  concerning  wages  per  hour 
of  180,096  male  employees  in  32  manufacturing  industries  in  the  United 
States  in  1900.3  A  mere  glance  at  the  two  non-cumulative  distributions 
will  bring  home  the  fact  that  while  they  show  considerable  similarity  in 
the  upper  income  range  tails,  they  are  quite  dissimilar  in  the  remainder 

'The  illustration  shows  only  "rough  similarity"  in  the  extreme  tails.  However,  there 
seems  no  good  reason  for  believing  that  even  great  similarity  in  the  tails  proves  similarity 
in  the  rest  of  the  distribution.  It  certainly  cannot  do  so  in  the  case  of  essentially  hetero- 
geneous distributions,  such  as  income  distributions. 

2  Bureau  of  Labor  Statistics,  Bulletin  No.  252. 

3  Twelfth  Census  of  the  United  States  (1900),  Special  Report  on  Employees  and  Wages, 
Davis  R.  Dewey. 


, 


PARETO'S  LAW 


373 


CHART  280 

CUMULATIVE  rRWUEHCY  DISTRIBUTION 

OF 

RATES  OF  WAGES  PER  HOUR 

FOR 
IS0.096    MALE   EMPLOYEES 

-100,000 

32  MANUFACTURING  INDUSTRIES 

IN   THE  US    IN  1900 

scutes  Dittry ii"cr/au3 

Scales  logarithmic 

-10,000 

pa 

» 

Eh 
O 

-1,000 

OS 
W 

pa 

s 

3 
2 

-100 

WAGES 

IN 

CENTS 

PER  HOUR 

10 

15 

20 

25 

30 

40          50 

60       70     80    90   100 

of  the  curves.    Moreover,  in  spite  of  this  similarity  of  tails,  the  slaughtering 

and  meat-packing  distribution  has  a  coefficient  of  variation  of  30.5  while 
the  manufacturing  distribution  has  a  coefficient  of  47.7.  In  other  words, 
the  relative  scatter  or  "inequality  of  distribution"  is  more  than  one-and-a- 
half  times  as  great  in  the  manufacturing  data  as  it  is  in  the  slaughtering 
and  meat-packing  data.  Furthermore,  no  discussion  and  explanation  of 
greater  essential  heterogeneity  in  the  one  distribution  than  in  the  other 
will  offset  the  fact  that  the  tails  are  similar  but  the  distributions  are  dif- 
ferent. There  seems  indeed  to  be  almost  no  correlation  between  the  slope 
of  the  upper-range  tail  and  the  degree  of  scatter  in  wages  distributions. 
Some  distributions  showing  extremely  great  scatter  have  very  steep  tails, 
some  have  not.1  The  frequency  curve  for  the  distribution  of  income  in 
Australia  in  1915  is  radically  different  from  either  the  curve  for  the  United 
States  in  1910  constructed  by  Mr.  \Y.  I.  King  or  the  curve  for  the  United 
States  in  1918  constructed  by  the  National  Bureau  of  Economic  Research. 


1  The  tails  of  wage  distributions  have  in  general  much  greater  slopes  than  those  of  the 
upper  (i.  e.,  income-tax)  range  of  income  distributions.  This  is  an  outstanding  difference 
between  the  two  distributions.  Pareto's  conclusions  with  respect  to  the  convex  appearance 
of  the  curve  for  wages  are  consistent  with  curves  showing  number  of  dollars  per  income-tax 
interval  traceable  to  wages  but  not  with  actual  wage  distributions  showing  number  of 
recipients  per  wage  interval.  Distributions  based  upon  income  from  effort  and  distributions 
based  upon  income  from  such  sources  (mostly  profits  and  income  from  property)  as  yield  the 
higher  incomes  seem  to  have  tails  the  one  as  roughly  straight  as  the  other,  indeed  many 
wage  distributions  have  tails  more  closely  approximating  straight  lines  than  do  income-tax 
data. 


374 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  28  P 

FREQUENCY  DISTRIBUTION 

OF 

RATES  OF  WAGES  PER  HOUR 

FOR 

180,096  MALE  EMPLOYEES 

IN 

V                                                                                    32  MANUFACTURING  INDUSTRIES 

\^                                                                                              IN  THE     U.   S.   IN    1900 

\<!q                                                                      source  Dcyt£r  wctnsus 

\X>                                                                                            5cal&5  Loganlhmic 

A^ 

-10,009 

-1,000 

W 
w 

s 

-100  g 

< 

o 

O 

NUMBER 

-1 

10 

WAGES  IN  CENTS  PER  HOUR 
15              20           25        30              40           50        60       70     80    90  100 

Yet  all  three  curves  have  tails  on  a  double  log  scale  quite  as  similar  as  is 
common  with  income-tax  returns.1 

From  this  discussion  we  may  draw  the  corollary  that  it  is  futile  to  at- 
tempt to  measure  changes  in  the  inequality  of  distribution  of  income 
throughout  its  range  by  any  function  of  the  mere  tail  of  the  income  fre- 
quency distribution.  It  seems  unnecessary  therefore  to  discuss  Pareto's 
suggestions  on  this  subject. 

4.  Is  it  probable  that  the  distribution  of  income  is  similar  enough 
from  year  to  year  in  the  same  country  to  make  the  formulation 
of  any  useful  general  "law"  possible? 

1  As  will  be  seen  in  Chapter  29,  there  seems  reason  for  believing  that  the  extreme  difference 
between  the  distribution  of  incomes  obtained  by  the  Australian  Census  and  the  estimate 
made  by  the  National  Bureau  of  Economic  Research  is  due  largely  to  difference  in  definition 
of  income,  and  income  recipient.  However,  this  does  not  alter  the  fact  that  we  have  here 
again  two  distributions  with  tails  as  similar  as  is  usual  with  income-tax  distributions  and 
lower  ranges  about  as  different  as  it  is  possible  to  imagine. 


W 


PARETO'S  LAW  375 

Before  answering  this  question  we  must  decide  what  we  should  mean 
by  the  word  similar.  If  income  distributions  for  two  years  in  the  same 
country  were  such  that  each  distribution  included  the  same  individ- 
uals and  each  individual's  income  was  twice  as  large  in  the  second  year 
as  it  had  been  in  the  first  year,  it  would  seem  reasonable  to  speak  of  the 
distributions  as  strictly  similar.  If  in  a  third  year  (because  of  a  doubling 
of  population  due  to  some  hypothetical  immigration)  the  number  of  per- 
sons receiving  each  specified  income  size  was  exactly  twice  what  it  was 
in  the  second  year,  it  would  .^t ill  seem  reasonable  to  -peak  of  the  distribu- 
tions as  strictly  similar.  Tested  by  any  statistical  criterion  of  dispersion 
which  takes  account  of  relative  size  (such  as  the  coefficient  of  variation), 
the  dispersion  is  precisely  the  same  in  each  of  the  three  years.  Moreover 
the  three  distributions  mentioned  above  x  must  necessarily  have  identically 
the  same  shape  on  a  double  log  scale,  and  furthermore  any  two  distribu- 
tions which  have  identically  the  same  shape  on  a  double  log  scale  '-'  must 
necessarily  have  the  same  relative  dispersion  as  measured  by  such  indices 
as  the  coefficient  of  variation,  interquartile  range  divided  by  median,  etc. 
Approximation  to  identity  of  shape  on  a  double  log  scale  seems  then  a 
useful  concept  of  "similarity."    It  is  the  concept  implicit  in  Pareto's  work.3 

Now  we  have  already  found  considerable  evidence  that  income  dis- 
tributions are  not,  to  a  significant  degree,  similar  in  shape  on  a  double  log 
scale.  The  income-tax  tails  of  income  distributions  for  different  times  and 
places  neither  approximate  straight  lines  of  constant  slope  nor  approxi- 
mate one  another;  they  are  of  distinctly  different  shapes.  Moreover,  such 
tails  do  not  show  in  respect  of  their  numbers  of  income  recipients  and 

'Or,  any  distributions  whose  equations  may  be  reduced  to  one  another  by  substituting 
k\X  for  x  and  />•_>//  for  y. 

2  The  curve  may  be  thought  of  as  consisting  of  two  parts,  which  before  reduction  to  log- 
arithms, would  be  (1)  the  positive  income  section  and  (2)  the  negative  income  section  with 
positive  signs. 

•While  approximate  identity  of  shape  on  a  natural  scale  a  natural  x  and  log  .</  scale,  or 
any  other  similar  criterion  would  constitute  a  "law,"  no  such  approximate  identity  of  shape 
on  such  scales  has  yet  been  discovered  and  it  seems  difficult  to  advance  any  very  cogent 
a  priori  reasons  for  expecting  it. 

In  this  connection  we  must  remember  thai  had  we  the  exact  figures  for  the  entire  frequency 
curves  of  the  distribution  of  income  in  the  United  States  from  year  to  year,  if  moreover  we 
could  imagine  definitions  of  income  and  iiimm,  ncipient  which  would  be  philosophically 
satisfactory  and  statistically  usable — and  if  further  we  managed  year  by  year  to  describe 
our  data  curves  adequately  by  generalized  mathematical  frequency  curves  of  more  or  less 
complicated  variety  we  should  not  necessarily  have  arrived  at  any  particularly  valuable  re- 
sults. Any  series  of  data  may  be  described  to  any  specified  degree  of  approximation  by  a 
power  series  of  the  type  y  =  A  -f-  Bx  -\-  Cx-  -f-  Dx*  + but  such  lit  is  purely  em- 
pirical and  absolutely  meaningless  except  as  an  illustration  of  MacLaurin's  theorem  in  the 
differential  calculus.  We  might  be  able  to  describe  each  year's  data  rather  well  by  one  of 
Karl  Pearson's  generalized  frequency  curves,  but  if  the  essential  characteristic-,  of  the  curve  — 
skewness,  kurtosis,  etc.,  changed  radically  from  year  to  year,  description  of  the  data  by  such 
a  curve  might  well  give  no  clue  whatever  as  to  any  "law."  Not  only  might  the  years  be  dif- 
ferent but  the  fits  might  be  empirical.  Profes  or  Edgeworth  has  well  said  that  "a  close  fit 
of  a  curve  to  given  statistics  is  not,  per  se  and  apart  from  a  priori  reasons,  a  proof  that  the 
curve  in  question  is  the  form  proper  to  the  matter  in  hand.  The  curve  may  be  adapted  to  the 
phenomena  merely  as  the  empirically  justified  system  of  cycles  and  epicycles  to  the  planetary 
movements,  not  like  the  ellipse,  in  favor  of  which  there  is  the  Newtonian  demonstration,  as 
well  as  the  Keplerian  observations."    Journal  of  the  Royal  Statistical  Society,  vol.  59,  p.  533. 


37G  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

total  amounts  of  income  any  uniformity  of  relation  to  the  total  number 
of  income  recipients  and  total  amount  of  income  in  the  country,  even 
after  adjustments  have  been  made  for  variations  in  population  and  average 
income.1  Considerations  such  as  these,  reenforce  the  conclusion  which 
we  arrived  at  from  an  examination  of  wage  distributions,  namely,  that 
there  is  little  necessary  relation  between  the  shape  of  the  tail  and  the  shape 
of  the  body  of  a  frequency  distribution,  and  have  led  us  to  suspect  that, 
even  if  the  tails  of  income  distributions  were  practically  identical  in  shape, 
it  would  be  extremely  dangerous  to  conclude  therefore  that  the  lower 
income  ranges  of  the  curves  were  in  any  way  similar. 

A  most  important  matter  remains  to  be  discussed.  What  right  have 
we  to  assume  that  the  heterogeneity  necessarily  inherent  in  all  income 
distribution  data  is  not  such  as  inevitably  to  preclude  not  only  uniformity 
of  shape  of  the  frequency  curve  from  year  to  year  and  country  to  country 
but  also  the  very  possibility  of  rational  mathematical  description  of  any 
kind  unless  based  upon  parts  rather  than  the  whole?  What  evidence  have 
we  as  to  the  extent  and  nature  of  heterogeneity  in  income  distribution 
data? 

In  the  first  place  we  must  remember  that  lower  range  incomes  are  pre- 
dominantly from  wages  and  salaries,  while  upper  range  incomes  are  pre- 
dominantly from  rent,  interest,  dividends  and  profits.2  While  74.67  per 
cent  of  the  total  income  reported  in  the  United  States  in  the  $1,000-12,000 
income  interval  in  1918  was  traceable  to  ivages  and  salaries,  only  33.10 
per  cent  of  the  income  in  the  $10,000-$20,000  interval  was  from  those 
sources,  and  only  15.92  per  cent  of  the  income  in  the  $100,000-1150,000 
interval  and  3.27  per  cent  of  the  income  in  the  over-$500,000  intervals. 
On  the  other  hand,  while  only  1.93  per  cent  of  the  total  income  reported 
in  the  $l,000-$2,000  interval  in  1918  was  traceable  to  dividends,  23.73 
per  cent  was  so  traceable  in  the  $10,000-120,000  interval,  43.18  per  cent 
in  the  $100,000-$150,000  interval,  and  59.44  per  cent  in  the  over-$500,000 
intervals.3    The  difference  in  constitution  of  the  income  at  the  upper  and 

1  Estimated  per  cent  of  total  income  received  by  highest  5%  of  income  receivers  in  United 
States: 

1913 33 

1914 32 

1915 32 

1916 34 

1917 29 

L918 20 

1919 24 

National  Bureau  of  Economic  Research,  Income  in  the  United  States,  vol.  1,  p.  116. 

2  Compare  Professor  A.  L.  Bowley's  paper  on  "The  British  Super-Tax  and  the  Distribution 
of  Income,"  Quarterly  Journal  of  Economies,  February,  1914. 

3  Statistics  of  Income  1918,  pp.  10  and  44. 

While  the  reporting  of  dividends  was  almost  certainly  less  complete  in  the  lower  than  in 
the  upper  income  classes,  the  difference  could  not  be  sufficient  to  invalidate  the  general  con- 
clusion. Lower  range  incomes  are  predominantly  wage  and  salary  incomes;  upper  range  in- 
comes are  not. 


PARETO'S  LAW  377 

lower  ends  of  the  distribution  is  sufficient  to  justify  the  statement  that 
most  of  the  individuals  going  to  make  up  the  lower  income  range  of  the 
frequency  curve  are  wage  earners,  while  the  individuals  going  to  make  up 
the  upper  income  range  are  capitalists  and  entrepreneurs.1  What  do  we 
know  about  the  shapes  of  these  component  distributions?  Is  the  funda- 
mental difference  in  their  relative  positions  on  the  income  scale  their  only 
dissimilarity? 

In  any  particular  year  the  upper  income  tail  of  the  frequency  distribu- 
tion of  income  among  capitalists  and  entrepreneurs  seems  not  greatly  dif- 
ferent from  the  extreme  upper  income  tail  of  the  frequency  distribution 
of  income  among  all  classes.  This  is  what  we  might  expect.  Not  only  is 
the  percentage  of  the  total  income  in  the  extreme  upper  income  ranges 
reported  as  coming  from  wages  and  salaries  small  but  much  of  this  so- 
called  wages  and  salaries  income  must  be  merely  technical.  For  example, 
it  is  often  highly  "convenient"  to  pay  "salary"  rather  than  dividends. 
Furthermore,  in  so  far  as  the  tail  of  the  curve  of  distribution  of  income 
among  capitalists  and  entrepreneurs  is  not  identical  with  the  tail  of  the 
general  curve,  it  will  show  a  smaller  rather  than  a  larger  slope,  because  the 
percentage  of  the  number  of  persons  in  each  income  interval  who  are 
capitalists  and  entrepreneurs  increases  as  we  pass  from  lower  to  higher 
incomes.2  Now  the  slopes  of  the  straight  lines  fitted  to  the  extreme  tails 
of  non-cumulative  income  distributions  on  a  double  log  scale  fluctuate 
within  a  range  of  about  2.4  to  3.0. 

The  upper  range  tails  of  wages  distributions  tell  an  entirely  different 
story.  Aside  from  surface  irregularities  often  quite  evidently  traceable  to 
concentration  on  certain  round  numbers,  the  majority  of  wages  distribu- 
tions have  tails  which,  on  a  double  log  scale,  are  roughly  linear.3  How- 
ever the  slopes  of  straight  lines  fitted  to  these  tails  are  much  greater  than 
the  slopes  of  corresponding  straight  lines  fitted  to  income  distribution 
tails.4    While  the  slopes  of  income  distribution  tails  range  from  about  2.4 

1  Many  individuals  in  the  middle  income  ranges  must  necessarily  bo  difficult  to  classify. 
This  does  not  mean  that  the  concept  nf  heterogeneity  is  inapplicable.  There  are  countries 
in  which  the  population  is  a  mixture  of  Spanish.  American  Indian,  and  Negro  blood.  Now 
such  a  population  must,  for  many  statistical  purposes,  he  considered  extremely  heterogeneous 
even  thougb  the  percentage  of  the  population  which  is  of  any  pure  blood  bo  quite  negligible. 

2  In  1917,  the  only  year  in  which  returns  are  classified  according  to  "principal  source  of 
income"  (wages  and  salaries,  income  from  business,  income  from  investment)  the  difference 
in  slope,  in  the  income  range  $100,000  to  $2,000,000,  between  the  distribution  for  all  returns 
and  the  distribution  for  those  returns  which  did  not  report  wages  and  salaries  as  their  prin- 
cipal source  of  income  was  less  than  .05.  The  slope  in  this  range  of  the  line  fitted  t<>  all  re- 
turns was  about  -.til;  the  business  and  investment  line  was  about  2.59  and  the  wages  line 
about  3.21.  In  1916,  the  only  year  in  which  returns  are  classified  according  to  occupations, 
the  distribution  of  income  among  capitalists  shows  a  slope  of  only  2.08  while  public  S< 
employees  (.civil)  show  a  slope  of  2.70  and  skilled  and  unskilled  laborers  a  slope  of  l'.71. 

'Attention  has  already  been  drawn  to  the  fact  that  this  is  a  characteristic  of  many  fre- 
quency distributions  of  various  kinds. 

4  A  further  difference  between  the  upper  range  income  distribution  among  capitalists  and 
entrepreneurs  and  the  upper  range  of  the  distribution  among  all  persons  seems  to  be,  from 
the  l'.llfi  occupation  distributions,  that  the  distribution  among  all  persons  shows  less  of  a  roll, 
i.  e.,  is  straighter. 


378  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

to  3.0,  the  slopes  of  wages  distributions  tails  commonly  range  between 
4.0  and  6.0.  They  seldom  run  below  about  4.5;  they  sometimes  run  as 
high  as  10.0  and  11.0. 

A  distribution  of  wages  per  hour  for  26,183  male  employees  in  iron  and 
steel  mills  in  the  United  States  in  1900  1  shows  a  tail  with  a  slope  of  about 
3.35.  However,  the  total  of  which  this  is  a  part,  the  distribution  of  wages 
per  hour  among  180,096  male  employees  in  32  manufacturing  industries 
in  1900,  shows  a  tail-slope  of  about  4.8.  The  estimated  distribution  of 
weekly  earnings  of  5,470,321  wage  earners  in  the  United  States  in  1905  2 
shows  a  tail-slope  of  about  5.0.  The  distribution  of  earnings  per  hour 
among  318,946  male  employees  in  29  different  industries  in  the  United 
States  in  1919  3  shows  a  tail-slope  of  about  5.86.  The  distribution  of 
wages  per  month  among  1,939,399  railroad  employees  in  the  United  States 
in  1917  q  shows  a  tail-slope  of  about  6.25.  The  distribution  of  wages  per 
hour  among  43,343  male  employees  in  the  foundries  and  metal  working 
industry  of  the  United  States  in  1900  5  shows  a  tail-slope  of  about  7.8. 
The  distribution  of  earnings  in  a  week  among  9,633  male  employees  in  the 
woodworking  industry — agricultural  implements — in  the  United  States  in 
19006  shows  a  tail-slope  of  over  11.0.  At  the  other  extreme  was  the  case 
of  the  wages-per-hour  distribution  among  26,183  male  employees  in  Amer- 
ican iron  and  steel  mills  in  1900  with  a  slope  of  3.35.  Both  11.0  and  3.35 
are  exceptional,  but  the  available  data  make  it  clear  that  wages  distribu- 
tions of  either  earnings  or  rates  have  tail-slopes  which  are  always  much 
greater  than  the  maximum  tail-slope  of  income  distributions. 

The  illustrations  in  the  preceding  paragraph  are  illustrations  of  the  tail- 
slopes  of  wages  distributions  among  wage  earners.  However  all  the  evi- 
dence points  to  frequency  distributions  of  income  among  wage  earners 
having  tail-slopes  only  very  slightly  less  steep  than  the  tail-slopes  of  wages 
distributions.  We  have  almost  no  usable  data  concerning  the  relation 
between  individual  wage  distributions  and  income  distributions  for  the 
same  individuals,  but  we  have  a  few  samples  showing  the  relation  between 
family  earnings  distributions  and  family  income  distributions.7  More- 
over, we  can  without  great  risk  base  certain  extremely  general  conclusions 

i  Twelfth  Census  of  the  United  States  (1900),  Special  Report  on  Employees  and  Wages, 
Davis  R.  Dewey. 

2 1905  Census  of  Manufacturers,  Part  IV,  p.  647. 

3 Monthly  Labor  Review,  Sept.,  1919. 

4  Report  of  the  Railroad  Wage  Commission  to  the  Director  General  of  Railroads,  1919,  p.  96. 

s  Twelfth  Census  of  the  United  States  (1900),  Special  Report  on  Employees  and  Wages, 
Davis  R.  Dewey. 

e  Twelfth  Census  of  the  United  States  (1900),  Special  Report  on  Employees  and  Wages, 
Davis  R.  Dewey. 

7  The  reader  must  not  confuse  the  percentage  of  the  income  not  derived  from  wages  going 
to  wage-earners  in  any  particular  income  class  with  the  percentage  of  the  income  not  derived 
from  wages  going  to  all  income  recipients  in  any  particular  income  class.  Some  of  these  last 
recipients  are  not  wage  earners  at  all,  they  receive  no  wages.  Information  concerning  the 
second  of  these  relations  but  not  the  first  is  given  in  the  income  tax  reports. 


PARETO'S  LAW  379 

concerning  individual  wage-earners'  income  distributions  on  these  family 
data.  The  upper  tails  of  the  family-wage  distributions  are  the  tails  of  the 
wage  distributions  for  the  individuals  who  are  the  heads  of  the  families. 
This  is  apparent  from  an  analysis  of  the  samples.  Now  income  from  rents 
and  investments  belongs  almost  totally  to  heads  of  families.  Such  income 
is  however  so  small  in  amount  that  it  cannot  alter  appreciably  the  slope 
of  the  tail.1  While  income  from  other  sources  than  rents  and  investments 
(lodgers,  garden  and  poultry,  gifts  and  miscellaneous)  may  not  be  so  con- 
fidently placed  to  the  credit  of  the  head  of  the  family,  this  item  changes 
its  percentage  relation  to  the  total  income  so  slowly  as  to  be  negligible  in 
its  effect  upon  the  tail-slope  of  the  distribution.2  Notwithstanding  the 
danger  of  reasoning  too  assuredly  about  individuals  from  these  picked 
family  distributions,  we  seem  justified  in  believing  that  the  tail-slopes  of 
income  distributions  among  individual  wage  earners  are  not  very  different 
from  the  tail-slopes  of  wage  distributions  among  the  same  individuals.3 
The  upper  tail-slopes  of  income  distributions  among  typical  wage  earners 

1  For  example,  in  the  report  on  the  incomes  of  12,096  white  families  published  in  the  Monthly 
Labor  Review  for  December,  1919,  we  find  the  income  from  rents  and  investments  less  than 
one  ner  cent  of  the  total  family  income  for  each  of  the  income  intervals. 

Percentage  income  from 
Income  group  rents  and  investments 

is  of  total  income 
Under   S900  .079 

$    900-81,200  .176 

1,200-   1,500  .410 

1,500-  1,800  .551 

1,800-  2,100  .606 

2,100-  2,500  99.s 

2,500  and  over  .  778 

2  As  a  somewhat  extreme  example  the  Bureau  of  Labor  investigation  mentioned  in  the 
preceding  note  shows  the  following  relations  between  total  family  earniqgs  and  total  family 
income  (including  income  from  rents  and  investments,  lodgers,  garden  and  poultry,  gifts  and 
miscellaneous). 

Income  group  Percentage  that  total 

^         earnings  are  of  total  income 
Under   $900  96.2 

$    900-81,200  96.5 

1,200-   1,500  96.3 

1,500      1,800  96.0 

1,800     2.100  96.  3 

2,100     2.. '.00  95.1 

2,500  and  over  '.Hi.  2 

3  Further  corroboratory  evidence,  of  some  slight  importance,  that  the  tail-slopes  of  wage 
distributions  among  wage  earners  are  not  very  different  from  the  tail-slopes  of  income  dis- 
tributions among  wage  earners  is  yielded  by  the  fact  that  the  tail-slopes  of  income  distribu- 
tions among  families  (which  are  virtually  identical  with  the  tail-slopes  of  both  income  and 
wage  distributions  among  the  heads  of  these  families)  have  roughly  the  same  range  as  the 
tail-slopes  of  wage  distributions  among  individuals.  The  British  investigation  into  the  in- 
comes of  7,616  workingmen's  families  in  the  United  States  in  1909  shows  a  tail-slo] f  about 

3.5.  (Report  of  the  British  Board  of  Trade  on  Cost  of  Living  in  American  Towns,  loll.  [Cd. 
5609],  p.  XLIV.)  The  Bureau  of  Labor's  investigation  into  the  income  of  12.000  white  fam- 
ilies in  1919  shows  a  tail-slope  of  about  l.o.  .Mr.  Arthur  T.  Emery's  extremely  careful  in- 
vestigation into  the  incomes  of  2,000  Chicago  households  in  1918  shows  a  tail-slope  of 
about  1.1.  At  the  other  extreme  we  find  that  the  Bureau  of  Labor's  investigation  into  the 
income  of  11,156  families  in  1903  ( Kiijhii <  /////  Annual  Report  of  the  Commissioner  of  I.nhur, 
1903,  p.  558)  shows  a  tail-slope  of  about  10.0,  and  that  Mr.  R.  ('.  Chapin's  investigation  into 
the  income  of  301  workingmen's  families  in  New  York  City  (Standard  of  Lit  ,  .  1  >ntj  Work- 
ingmen's Families  in  New  York  ('it;/,  p.  44)  also  shows  a  slope  of  about  10.0.  The  tails  of 
these  last  two  cases  are  very  irregular  so  that  the  slope  itself  is  not  determinable  with  much 
precision. 


380  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

may  then  be  assumed  to  have  much  greater  slopes  than  the  upper  tail- 
slopes  of  income  distributions  among  capitalists  and  entrepreneurs.  It 
does  not  seem  possible  to  make  any  very  definite  statement  concerning 
the  body  and  lower  tail  of  the  capitalist  and  entrepreneurial  distribution — 
even  in  so  far  as  that  term  is  a  significant  one.1  All  the  evidence  suggests 
that  the.  mode  of  what  we  have  termed  the  capitalist-entrepreneurial  dis- 
tribution is  consistently  higher  than  the  wage-earners'  mode.2  Its  lower 
income  tail  undoubtedly  reaches  out  into  the  negative  income  range,  which 
the  tail  of  the  wage-earners'  distribution  may,  both  a  -priori  and  from  evi- 
dence, be  assumed  not  to  do.  It  seems  a  not  irrational  conclusion  then  to 
speak  of  the  capitalist-entrepreneurial  distribution  as  having  a  lesser  tail- 
slope  than  the  wage- earners'  distribution  on  the  lower  income  side  as  well 
as  on  the  upper  income  side,3  and  as  a  corollary  almost  certainly  a  much 
greater  dispersion  both  actual  and  relative  than  the  wage-earners'  dis- 
tribution. 

Though  the  above  generalizations  concerning  differences  between  the 
wage-earners'  income  distribution  and  the  capitalist-entrepreneurial  in- 
come distribution  seem  sound,  they  tell  but  a  fraction  of  the  story.  Aside 
from  the  difficulty  of  classifying  all  income  recipients  in  one  or  the  other 
of  these  two  classes,  we  are  faced  with  the  further  fact  that  investigation 
suggests  that  our  two  component  distributions  are  themselves  exceedingly 
heterogeneous.4  We  have  already  noted  that  wage  distributions  for  dif- 
ferent occupations  and  times  are  extremely  dissimilar  in  shape  and  we 
suspect  that  the  same  applies  to  capitalist-entrepreneurial  distributions. 
For  example,  what  little  data  we  possess  suggest  that  the  distribution  of 
income  among  farmers  has  little  in  common  with  other  entrepreneurial 
distributions. 

Moreover,  the  component  distributions,  into  which  it  would  seem  nec- 
essary to  break  up  the  complete  income  distribution  before  any  rational 
description  would  be  possible,  not  only  have  different  shapes  and  different 
positions  on  the  income  scale  (i.  e.,  different  modes,  arithmetic  averages, 
etc.),  but  the  relative  position  with  respect  to  one  another  on  the  income  scale 
of  these  different  component  distributions  changes  from  year  to  year.5 

1  In  the  total  income  curve  there  is  a  broad  twilight  zone  where  individuals  are  often  both 
wage  or  salary  earners  and  capitalists  or  even  entrepreneurs. 

-  In  the  1016  occupation  distributions  the  only  occupations  showing  more  returns  for  the 
$4,00(1  $5,000  interval  than  the  $3,000  $4,000  (that  is  the  only  occupations  showing  any 
suggestion  of  a  mode)  are  of  a  capitalistic  or  entrepreneurial  description — bankers;  stock- 
brokers; insurance  brokers;  other  brokers;  hotel  proprietors  and  restaurateurs;  manufacturers; 
merchants;  storekeepers;  jobbers;  commission  merchants,  etc.;  mine  owners  and  mine  op- 
erators; saloon  keepers;  sportsmen  and  turfmen. 

:l  ( )f  course  the  very  word  slope  is  an  ambiguous  term  to  use  concerning  the  tail  of  a  curve 
which  enters  the  second  quadrant. 

i  Evidence  suggesting  definite  heterogeneity  in  the  "wage  and  salary"  figures  of  the  income- 
tax  returns  is  presented  in  Chapter  .'50. 

5  This  fact  is  one  of  the  simpler  pieces  of  evidence  against  the  existence  of  a  "law."  Of 
course,  even  though  the  income  distribution  were  made  up  of  heterogeneous  material,  if  the 


PARETO'S  LAW 


:;si 


Table  28Q  l  is  interest  ins  as  showing  the  changes  in  the  relative  positions 
of  the  arithmetic  averages  of  different  wage  distributions  in  1909,  1913 
and  1918. 

TABLE  28Q 

CHANGES   IX  THK   RELATIVE  POSITIONS  OF  THE   AVERAGE   ANNUAL 
EARNINGS  OF  EMPLOYEES  ENCACKD  IN  VARIOUS  INDUSTRIES 


Industry 

All  Industries 

Agriculture 

Production  of  Minerals 

Manufacturing: 

Factories 

Hand  Trades 

All  Transportation 

Railway,  Express,  Pullman,  Switching  ami 
Terminal  ( los 

Street  Railway,  Electric  Light  and  Power, 
Telegraph  and  Telephone  Cos 

Transportation  by  Water 

Banking 

( iovernment 

Unclassified  Induct  ries 


L909 


100.0 
48.2 
95.7 


91 
111 

101 


104.0 


99 
L23 

123 
118 
114 


1913 


100.0 

15    ! 

104.4 

97  5 
L03  5 
L05   1 

108  '_' 

93.8 
114.1 
128.6 
113.8 
107.7 


191S 


100.0 

54.7 

119.0 

103  ■". 
110.8 
119.3 

129  :; 

'  si  1 
147.5 
135.5 

83.0 

97.8 


The  data  are  so  inadequate  that  the  construction  of  a  similar  table  for 
capitalist-entrepreneurial  distributions  is  not  feasible.  However,  there  are 
comparatively  good  figures  for  total  income  of  farmers  and  total  number 
of  farmers  year  by  year.2  The  average  incomes  of  farmers,  year  by  year, 
were  the  following  percentages  of  the  estimated  average  incomes  of  all 
persons  gainfully  employed  in  the  country. 


1910 
1911 
1912 
1913 
1914 
1915 
1916 
1917 
1918 
1919 
1920 


Percentages 

75.19 

69.13 

72.41 

74.88 

76.33 

80.45 

82.85 
104.51 
109.68 
103.95 

63.88 


This  is  a  wide  range. 

Exactly  what  effects  have  such  internal  movements  of  the  component 
distributions  upon  the  total  income  frequency  distribution  curve?  This 
is  a  difficult  question  to  answer  as  we  have  not  sufficient  data  to  break 

component  parts  remained  constant  in  shape  and  in  their  relative  positions  with  respect  to  one 
another  on  the  income  scale,  these  relations  would  of  themselves  constitute  a  "law." 

1  Based  upon  Incomt  in  tht   United  States,  Vol.  I,  pp.  102  and  103. 

2  See  Income  in  the  United  States,  Vol.  I,  p.  112. 


382 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


down  the  total,  composite,  curve  into  its  component  parts  with  any  de- 
gree of  confidence.1  However,  the  movements  of  wages  in  recent  years 
would  appear  to  give  us  a  clue  to  the  sort  of  phenomena  we  might  expect 
to  find  if  we  had  complete  and  adequate  data. 

The  slopes  of  the  upper  income  tails  of  wages  distributions  are  great, 
4  to  5  or  more.2  Now  the  wage  curve  moved  up  strongly  from  1917  to 
1918  if  we  may  judge  by  averages.  The  average  wage  of  all  wage  earners 
in  the  United  States  3  increased  15.6  per  cent 4  from  1917  to  1918.  During 
the  same  period  the  average  income  of  farmers  increased  19.1  per  cent5 
and  the  average  income  of  persons  other  than  wage  earners  and  farmers 
remained  nearly  constant.  Total  amounts  of  income  by  sources  in  millions 
of  dollars  were: 


1917 

1918 

Percentage  1918 
was  of  1917 

• 

Total  Wages  a 

Total  Planners'  Income 

All  other  Income 

$27,795 

8,800 

17,265 

$32,575 
10,500 
17,291 

117.20 
119.32 
100  15 

Total  Income 

$53,860 

$60,366 

112.08 

a  Includes  pensions,  etc.,  and  includes  soldiers,  sailors,  and  marines. 

Stockholders  in  corporations  saw  income  from  that  source  actually  decline 
from  1917  to  1918.6  What  happened  to  American  income-tax  returns 
during  this  time? 

1  The  processes  by  which  the  income  distribution  curve  published  in  Income  in  the  United 
States,  Vol.  I,  pp.  132-135  was  arrived  at  were  such  that  to  use  that  material  here  would 
practically  amount  to  circular  reasoning.  The  conclusions  arrived  at  here  were  used  in  build- 
ing up  that  curve. 

-  The  slope  of  the  tail  of  the  wage  and  salary  curve  in  the  1917  income  tax  returns  is  only 
about  3.21  (compare,  note  2,  p.  377).  However  we  must  remember  that  the  individuals  there 
classified  are  largely  of  an  entirely  different  type  of  "wage-earner"  from  those  in  the  lower 
groups.  In  this  upper  group  occur  the  salaried  entrepreneurs,  professional  men,  etc.,  and 
those  whose  "salaries"  are  really  profits  or  dividends.  The  evidence  points  to  a  rather  dis- 
tinct and  significant  heterogeneity  along  this  division  in  the  wage  and  salary  distribution. 
See  Chapter  30. 

3  Excluding  soldiers,  sailors,  and  marines,  and  professional  classes  but  including  officials 
and  "salaried  entrepreneurs." 

«  From  $945  per  annum  in  1917  to  SI, 092  per  annum  in  191S. 

5  From  §1,370  per  annum  in  1917  to  $1,632  per  annum  in  1918. 


«  CORPORATION  DIVIDENDS,  SURPLUS  AND  EARNINGS 
(In  millions  of  dollars) 

Dividends 

Surplus 

Net  earnings 

1917 

1918 

3,995 
2,568 

3,963 
1,945 

7,958 
4,513 

See  page  324. 


. 


PARETO'S  LAW 


383 


TOTAL  AMOUNT  OF  NET  INCOME  RETl'liNED  BY  SOURCES  (RETURNS 
REPORTING  OVER  $2,000  PER  ANNUM  NET  INCOME;* 


(Millions  of  doll. 


Income  class 


Over  $2,000 .  . 

2,000-  4,000. 

4,000-  5,000. 

5,000-10,000 . 
Over      10,000. 


Wages  and  salaries 


1917 


$3,648 

1,553 

301 

661 

1,133 


1918 


$6,493 

3,687 
703 
849 

1,254 


All  other  sources  b 


1917 


$7,543 

1,7'.  I'.) 

528 

1,167 

1.049 


l'.ils 


>7.198 

2,036 

736 

1,296 

3,130 


a  Wages  income  from  returns  reporting  between  SI, 000  and  $2,000  per  annum  is  not  avail- 
able for  1917. 

b  "Other  sources"  are  total  net  income  minus  wages  and  salaries,  i.  e.,  total  general  deduc- 
tions have  been  assumed  as  deductible  from  other  sources  (gross).  All  things  considered, 
this  seems  proper  here  though  it  may  easily  be  criticised.  In  connection  with  changes  in  the 
relation  between  net  and  gross  income  from  1917  to  1918  see  Chapter  30,  pp.  401  and  402. 

While  reported  income  from  all  other  sources  than  wages  and  salaries 
declined  4.6  per  cent,1  reported  income  from  wages  and  salaries  increased 
78.0  per  cent.2  Moreover,  the  great  increases  in  wages  and  salaries  were 
in  the  lowest  intervals.  The  wage  curve  with  its  steep  tail-slope  was 
moving  over  into  the  income  tax  ranges.3  The  effect  upon  the  total  curve 
is  veiy  pronounced,  as  may  be  seen  from  Table  28R. 

TABLE  28R 


AxMERICAN  INCOME  TAX  RETURNS  IN  1917  AND  1918 


Total  Number  of  Returns 
(In  thousands) 


$2,000-$4,000 
4,000-  5,000 
5,000-10,000 

Over      10,000. 


1917 


1,214 
186 
271 
162 


101S 


2,107 
:V22 
319 
160 


Percentage  L918 

was  of  1917 


17:;  56 

17.;   12 

117.71 

98  77 


On  a  double  log  scale  we  see  the  curve  changing  its  shape  radically.  While 
the  1917  curve  is  comparatively  smooth  and  regular,  the  1918  curve 
develops  a  distinct  "bulge"  in  the  lower  ranges.4 

The  preceding  discussion  has  been  concerned  with  equal  dollar-income 

1  Had  "other  sources"  been  taken  gross  instead  of  net,  that  item  would  have  shown  an 
increase  of  5.3  per  cent  instead  of  a  decrease  of  4.6  per  cent. 

2  The  actual  spread  is  still  greater  than  the  figures  show.  Income  from  professions,  which 
in  1917  was  classed  under  wages,  in  l'.ils  and  1919  was  classed  under  business. 

3  This  seem.-  to  be  a  fact  though  it  is  not  the  whole  story.  The  "intensive  drive"  of  1019 
may  easily  account  for  some  of  the  increase.  See  Chapter  30  for  a  discussion  of  the  probable 
extent  of  this  influence. 

4  See  Income  in  the  United  States,  Vol.  I,  Charts  28  and  30. 


384 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


intervals.  However,  $2,000  income  in  1918  was  relatively  less  than  $2,000 
income  in  1917.  The  average  (per  capita)  income  of  the  country  was 
$523  in  1917  and  $586  in  1918.1  The  adjustment  is  theoretically  crude, 
but  $2,241  2  in  1918  might  be  considered  as  in  one  sense  equivalent  to 
$2,000  in  1917.  The  results  of  comparisons  of  the  two  years  upon  this 
basis  are  given  in  Table  28S.3 

TABLE  28S 


INCOME  RETURNED— BY  SOURCES 


(Millions  of  dollars) 
1917 


Income  class 

Wages  and 
salaries 

Total  net 
income 

Total  net 
income 
minus 
wages  and 

salaries 

Total  gross 
income 

Total  gross 

income 

minus 

wages  and 

salaries 

$2,000-$4,000 

4,000-  5,000 

5,000-10,000.  .  .. 

Over     10,000 

$1,553 

301 

661 

1,133 

$3,352 

829 

1,828 

5,182 

$1,799 

528 

1,167 

4,049 

$3,713 

895 

1,951 

5,518 

$2,161 

594 

1,290 

4,384 

1918 


$2,241-$4,482.  ... 

$3,236 

$5,359 

$2,123 

$5,766 

$2,530 

4,482-  5,602.  .  .  . 

498 

1,111 

613 

1,247 

749 

5,602-11,205 

773 

1,960 

1,187 

2,315 

1,542 

Over    11,205 

1,153 

4,129 

2,976 

4,842 

3,689 

£93 

(Multiplied  by  — ,  that  is  reduced  to  "1917  dollars") 
586 


$2,241-34,482 

$2,888 

$4,783 

$1,895 

$5,146 

$2,258 

4.482-  5,602 

445 

992 

547 

1,113 

668 

5,602-11,205.  ... 

690 

1,749 

1,059 

2,066 

1,376 

Over      11,205.  . 

1,029 

3,685 

2,656 

4,321 

3,292 

(Percentages  of  Total  Income  of  Country) 
1917 


$2,000-$4,000 

2.88 

6.22 

3 .  34 

6.89 

4.01 

4,000-  5,000 

.56 

1.54 

.98 

1.66 

1.10 

5,000-10,000.  .  . 

1.23 

3 .  39 

2.16 

3.62 

2.39 

Over      10,00 

2.10 

9.61 

7.51 

10.24 

8.14 

1918 


$2,241-14,482 

5.30 

8.78 

3.48 

9.45 

4.15 

4,482-  5,602 

.82 

1.82 

1.00 

2.05 

1.23 

5,602-11,205.  .  .  . 

1.27 

3.21 

1.94 

3.  SO 

2.53 

Over      11,205... 

1.89 

6.77 

4.88 

7.94 

6.05 

1  Income  in  tin    United  States,  Vol.  I,  p.  70. 

2  $2,000  X  |||- 

3  The  figures  for  the  amounts  of  income  in  the  irregular  1918  income  intervals  of  that  table 
($2,241-$4,482,  etc.)  were  calculated  by  straight  line  interpolation  on  a  double  log  scale  ap- 
plied to  the  even  thousand  dollar  intervals  of  the  income-tax  returns.  Though  the  total 
income  curve  does  not  approximate  linearity  it  may  be  assumed  linear  within  the  small 
range  of  one  income  tax  interval  without  serious  error. 


S 


PARETO'S  LAW 


385 


(Table  28S  concluded.) 


NUMBER  OF  RETURNS 
(Thousands) 


Income  class 

1917 

Income  class 

L918 

Percentage  L918 

was  of  1917 

$2,000-$4,000 

4,000-  5,000 

5.000-10,000 

Over     10,000 

1,214 
186 
271 
162 

$2,241-84,482 

4,482-  5,602 

5,602-11,205 

Over     11,205 

1,758 
220 
260 
136 

144.81 

118.28 

95.94 

83  95 

It  is  from  this  table  once  again  apparent  that  the  wage  distribution  moved 
independently  up  on  the  income  scale  and  that  the  effecl  of  this  movement 
was  confined  to  the  lowest  income  intervals.  Charts  28T,  28U,  28V,  28W, 
28X,  28Y,  28Z,  and  28AA  which  show  the  number  of  dollars  income  per 
dollar-income  interval,  by  sources,  are  enlightening  as  illustrating  in  still 


CHART  28T 


US    INCOME   TAX  RETURNS 
1916 

NUMBER  OF  DOUARS  !H  EACH  INCOME 
INTERVAL  BY  SOURCES 


-1 


INCOME  IN  THOUSANDS  OF  DOLLARS 
10  20  30     40    SO  100  200 

I  I  ■        l      i  i       I  i 


300 


400  500 

i        i 


1.000 


2,000 


386 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  28  U 

U.  5.  INCOME  TAX  RETURNS 

1916 

NUMBER  OF  DOLLARS  IN  EACH 

INCOME  INTERVAL  BY  SOURCES. 

Scales  Logarithmic. 

4.  INCOME  OTHER  THAN  WAGES 

4c^~-^ 

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INCOME  IN  THOrSANDS  OF  DOLLARS 

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1,000             2,000 

PARETO'S  LAW 


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U.S.  INCOME  TAX  RETURNS 
1317 

NUMBER  OF  DOLLARS  IN  EACH 
INCOME  INTERVAL  BY  SOURCES 

Scales  Logarithmic 

1  TOTAL  INCOME. 
8   WAGES. 

3  BUSINESS. 

4  OTHER  INCOME. 


4      5 

I       I 


INCOME  IN  THOUSANDS  OF  DOLLARS 
10  20         30      40    50  100  200 

111  I  ' 


300    400  500 


1.000 


2,00c 


388 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  28  W 

U  5    INCOME  TAX  RETURNS 

1917 

NUMBER  OF  D0LLAR5  IN  EACH 

INCOME  INTERVAL  BY  SOURCES 

4o ( 

Scales   Logarithmic 

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PARETO'S  LAW 


389 


CHART  28  X 

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U  S  INCOME  TAX  RETURNS 

1918 

"^K 

NUMBER  OF  DOLLARS  IN  EACH 

3 

INCOME  INTERVAL  BY  SOURCES 

Scales  Logarithmic 

1  TOTAL  income: 

-100,000 

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2           3       4      5 

10                  20         30 

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390 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


, 


PA  KIOTO'S  LAW 


391 


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CHART  2SZ 


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U  5  INCOME.  TAX  RETURNS 
1313 
NUMBER  OF  DOLLARS  IN  EACK 
INCOME  INTERVAL  BY  SOURCES 
Scales  Logarithmic. 

1.  TOTAL  INCOME 

2  WAGES 

3  BUSINESS 

A  OTHER  INCOME. 


t 

i 

1 


3       4      S 

i         i       i 


INCOME  IN  THOUSANDS  OF  DOLLARS 
10  20         30     40     50  1UU 

1        i     i    i   i        i 


200   300  400  500 


1.000 

_ 


V -z 


2.000   3.000 

1 


392 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  28AA 


-10,000 


-1.000  « 


-100 


■10 


U  S   INCOME  TAX  RETURNS 

1313 

NUMBER  OF  DOLLARS  IN  EACH 

INCOME  INTERVAL  BY  SOURCES 

5cales  Logarithmic 
A   INCOME  OTHER  THAN  WA6E5 
OR  BUSINESS 

5  RENTS. 

6  INTEREST. 

7  DIVIDENDS. 


4      5 


INCOME  IN  THOUSANDS  OF  DOLLARS 
10  20  30      40    50  100  200 

I,  ii  I  I 


300    400  500 


IOOO 


2000 


3000 

— — — 


<* 


PARETO'S  LAW  393 

greater  detail  the  changes  in  the  constitution  of  the  returns  from  year  to 
year. 

Such  material  and  the  appearance  of  the  "bulge"  on  the  income-tax 
curve  in  the  lowest  income  ranges  1  in  the  years  1918  and  191(.)  when  wages 
and  salaries  wore  high  and  average  (per  capita)  incomes  also  high  -  strongly 
suggest  that  the  income  curve,  in  so  far  as  it  shows  any  similarity  from 
year  to  year,  changes  its  general  appearance  and  turns  up  (on  a  double 
log  scale)  as  it  approaches  those  ranges  where  wages  and  salaries  are  of 
predominant  influence.3  The  great  slopes  of  wage  distributions  are  on 
this  hypothesis  not  inconsistent  with  the  smaller  slope  of  the  general 
income  curve  in  its  higher  (income-tax)  ranges.4 

Conclusions: 

(1)  Pareto's  Law  is  quite  inadequate  as  a  mathematical  generalization, 
for  the  following  reasons: 

(a)  The  tails  of  the  distributions  on  a  double  log  scale  are  not, 
in  a  significant  degree,  linear; 

(b)  They  could  be  much  more  nearly  linear  than  they  are  without 
that  condition  being  especially  significant,  as  so  many  dis- 
tributions of  various  kinds  have  tails  roughly  approaching 
linearity; 

(c)  The  straight  lines  fitted  to  the  tails  do  not  show  even  approxi- 
mately constant  slopes  from  year  to  year  or  between  coun  try 
and  country; 

(d)  The  tails  are  not  only  not  straight  lines  of  constant  slope  but 
are  not  of  the  same  shape  from  year  to  year  or  between 
country  and  country. 

(2)  It  seems  unlikely  that  any  useful  mathematical  law  describing  the 
entire  distribution  can  ever  be  formulated,  because: 

(a)  Changes  in  the  shape  of  the  income  curve  from  year  to  year 
seem  traceable  in  considerable  measure  to  the  evident  hetero- 
geneity of  the  data; 

(b)  Because  of  such  heterogeneity  it  seems  useless  to  attempt  to 

1  See  Chapter  30  for  further  discussion  of  this  " bulge"  in  connection  with  an  examination 
of  how  far  it  may  he  the  result  of  irregularity  in  reporting. 

2  Average  (per  capita)  incomes  being  high  means  that  a  definite  money  income  (such  as 
$2,000)  takes  us  relatively  further  down  the  income  curve  than  it"  average  incomes  were  low. 

3  It  is  difficult  to  say  just  where  the  "  bulge"  might  have  appeared  in  the  1917  distribution 
if  as  great  efforts  had  been  made  to  obtain  correct  returns  in  that  year  as  were  made  under 
the  "intensive  drive"  for  1918  returns.  The  wages  line  on  the  1017  number  of  dollars  income 
per  dollar-income  interval  chart  (Chart  28V)  shows  signs  of  turning  up  somewhere  between 
$4,000  and  So, 000  and  the  business  line  somewhere  in  the  $5,000  S10.000  interval.  However 
neither  movement  is  larjie  nor  can  their  positions  be  accurately  determined  on  account  of  the 
size  of  the  reporting  intervals.     See  also  Chapter  .'50,  p.  412. 

4The  "bulge"  on  the  income  from  wages  and  salaries  curve  itself,  as  seen  in  the  income- 
tax  returns  for  1918  and  1919  (see  Charts  2sX  and28Z),  seems  the  result  of  heterogeneity  in 
these  wage  and  salary  data  themselves.     This  hypothesis  is  considered  in  Chapter  30. 


394  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

describe  the  whole  distribution  by  any  mathematical  curve 
designed  to  describe  homogeneous  distributions  (as  any  simple 
mathematical  expression  must  almost  necessarily  be  designed 
to  do) ; 

(c)  Furthermore,  the  existing  data  are  not  adequate  to  break  up 
the  income  curve  into  its  constituent  elements; 

(d)  If  the  data  were  complete  and  adequate  we  might  still  remain 
in  our  present  position  of  knowing  next  to  nothing  of  the 
nature  of  any  "laws"  describing  the  elements.1 

(3)  Pareto's  conclusion  that  economic  welfare  can  be  increased  only 
through  increased  production  is  based  upon  erroneous  premises. 
The  income  curve  is  not  constant  in  shape.  The  internal  movements 
of  its  elements  strongly  suggest  the  possibility  of  important  changes 
in  distribution.  The  radically  different  mortality  curves  for  Roman 
Egypt  and  modern  England,2  and  the  decrease  in  infant  mortality 
in  the  last  fifty  years  illustrate  well  what  may  happen  to  heteroge- 
neous distributions. 
The  next  four  chapters  review  the  data  from  which  any  income  frequency 
distribution  for  the  United  States  must  be  constructed. 

1  Though  all  the  evidence  points  to  hope  of  further  progress  lying  in  the  analysis  of  the 
parts  rather  than  in  any  direct  attack  upon  the  unbroken  heterogeneous  whole. 
*  See  Biometrika,  Vol.  I,  pp.  261-264. 


S 


CHAPTER  29 
OFFICIAL  INCOME  CENSUSES 

There  has  never  been  a  complete  income  census  of  the  American  people. 
The  Federal  income-tax  data  cannot  take  the  place  of  such  a  census.  Re- 
specting the  distribution  of  income  among  persons  having  incomes  of  less 
than  $1,000  Federal  income-tax  data  give  us  no  information  whatsoever. 
Furthermore,  on  account  of  the  exemption  of  married  persons,  compara- 
tively little  use  can  be  made  of  the  $1,000  to  82,000  interval.  The  number 
of  persons  reporting  incomes  over  $2,000  in  our  best  year,  1918,  was  only 
7.3  per  cent  of  the  estimated  total  number  of  income-recipients  in  the 
country.  Moreover,  not  only  because  of  direct  evasion  and  illegal  non- 
reporting,  but  also  because  of  "legal  evasion"  and  the  large  amount  of 
tax-exempt  income  which  need  not  be  reported  at  all,  these  income-tax 
data  cannot  give  an  approximately  correct  picture  of  even  that  part  of 
the  frequency  curve  which  lies  above  $2,000.  The  adjustments  of  the 
income-tax  data  necessary  to  obtain  such  a  picture  are  extremely  large, 
as  we  shall  presently  see. 

Only  one  country  in  the  world  has  ever  taken  an  official  income  census 
which  made  any  pretense  of  completeness.  Under  the  War  Census  An 
the  Commonwealth  of  Australia  took  an  official  income  census  of  incomes 
received  during  the  year  ended  June  30,  1915,  by  everyone,  man,  woman, 
or  child,  who  was  "possessed  of  property,  or  in  receipt  of  income."  x  The 
results  of  that  census  are  summarized  by  G.  H.  Knibbs,  the  Commonwealth 
Statistician,  in  The  Private  Wealth  of  Australia  and  its  Growth.  A  Re- 
part  of  the  War  Census  of  1915.  (See  Table  29A  and  Charts  29A,  29B 
and  29C.) 

Now  while  it  would  naturally  be  impossible  to  construct  a  complete 
frequency  distribution  for  American  incomes  from  Australian  data,2  we 
might  perhaps  hope  to  discover  some  characteristics  of  income-distribution 

1  While  the  first  clause  of  the  Australian  "Wealth  and  Income  Card"  stated  merely  that 
it  was  "to  be  filled  in  by  all  persons  aged  18  or  upwards  possessed  of  property,  or  holding 
property  on  trust,  or  in  receipt  of  income,"  etc.  (p.  9),  "a  special  instruction  was  issued  that 
in  the  ease  of  all  persons  under  the  age  of  18,  possessed  of  property,  or  in  receipt  of  income. 
a  return  must  be  furnished  by  the  parent  or  guardian  in  respect  of  such  property  or  income." 
(p.  10.)  The  income  from  such  trust  funds  was  not  all,  but  only  "in  the  main."  allocated  to 
individual  beneficiaries,     (p.  22.) 

G.  H.  Knibbs,  The  Private  Wealth  of  Australia  and  its  Growth.    A  R  fthe  War  Casus 

of  1915. 

2  Aside  from  the  questionableness  of  such  a  procedure,  the  large  size  of  the  low  income 
intervals  in  the  Australian  distribution  and  the  lack  of  information  concerning  the  amount 
of  negative  income  make  that  distribution  a  difficult  one  to  work  with.  A  classification  by 
such  largo  intervals  tells  very  little. 

395 


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CHART  29  A 

NON-CUMULATIVE  FREQUENCY  DISTRIBUTION 

SCALES  NATURAL 


■Males  and  Females 
Males 
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SCALE 


100.000 
PER50N5 


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INCOME  IN  POUNDS  STERLING 


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NON-CUMULATIVE  FREQUENCY  DISTRIBUTION 

SCALES  LOGARITHMIC 


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INCOME  IN  POUNDS  STERLING 

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CHART  29C 
CUMULATIVE  FREQUENCY  DISTRIBUTION 

SCffLES  LOGflR/THM/C 


INCOME  IN  POUNDS  STERLING 

200        30,0  59O  1,0,00  2,000     3,0,00      ,  '',000 


398  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

curves  in  general  from  this,  the  only  actual  census  ever  taken.  A  knowl- 
edge of  such  general  characteristics  might  then,  quite  imaginably,  be  a 
little  helpful  in  the  problem  of  describing  the  American  or  any  other 
income  distribution. 

However,  when  we  come  to  examine  the  Australian  figures,  we  find  that 
they  have  certain  pronounced  peculiarities  which  would  be  extremely  diffi- 
cult to  read  into  the  American  material.  For  example,  the  Australian  dis- 
tribution shows  a  flatness  and  lack  of  pronounced  mode  totally  unlike  the 
results  we  have  built  up  from  an  analysis  of  American  data.  In  the  Aus- 
tralian distribution  there  are  nearly  the  same  number  of  persons  having 
incomes  between  0  and  £50,  £50  and  £100,  and  £100  and  £150.1 

What  are  the  causes  of  this  rather  startling  peculiarity  of  the  Australian 
frequency  curve?  2  In  the  first  place  let  us  suggest  a  possibly  minor  but 
by  no  means  necessarily  negligible  factor.  We  know  little  about  the  good- 
ness of  the  Australian  reporting  in  this  census.  Income  is,  from  its  nature, 
a  difficult  subject  to  investigate.  When  the  material  is  collected  by  means 
of  schedules  to  be  filled  in  by  the  informants,  as  was  the  case  in  the  Aus- 
tralian census,  the  returns  may  easily  be  full  of  errors.  The  average  in- 
dividual is  surprisingly  ignorant  concerning  the  amount  of  his  total  income. 
The  further  fact  that  the  census  was  taken  in  order  to  estimate  possi- 
bilities of  future  taxation  may  well  have  been  a  powerful  incentive  towards 
great  irregularities  all  along  the  line,  but  especially  in  the  lower  income 
groups.  Persons  whose  income  brought  them  distinctly  into  the  upper 
groups  (over  £156)  were,  at  the  time  of  the  income  census,  about  to  make 
returns  under  oath  for  income-tax  purposes  and  would  hardly  care  to 
show  a  radical  discrepancy  between  the  two  returns.  On  the  other  hand, 
many  persons,  whose  true  incomes  were  around  £156  and  the  modal  income, 
might  easily  have  "underestimated"  with  the  idea  of  evading  if  possible 
future  taxation  based  upon  a  lowering  of  the  exemption  limit.  The  result 
of  such  practices  would  tend  to  show  up  graphically  in  a  flattening  of  the 
curve  in  the  vicinity  of  the  mode  of  the  distribution  and  a  raising  of  the 
numbers  in  the  lowest  groups.  3 

However,  poor  reporting  is  probably  only  a  secondary  element  ac- 
counting for  the  peculiarities  of  the  Australian  curve.    It  is  most  of  all  the 

>  See  Table  29 A  and  Chart  29 A. 

'-'  Notwithstanding  the  fact  that  distributions  for  different  times  and  for  different  countries 
probably  vary  greatly  (see  Chapter  I'M,  tin-  difference  between  the  Australian  curve  and 
the  Bureau's  American  estimate  seems  too  radical  to  explain  upon  this  basis. 

3  It  is  difficult  to  determine  the  extent  of  actual  non-reporting.  The  number  of  males 
filling  out  income  cards  was  2,527,831.  All  males  "possessed  of  property,  or  in  receipt  of 
income"  are  supposed  to  be  included  in  this  number.  It  amounted,  however,  to  only  54.60 
per  cent  of  the  total  male  population.  Males  "possessed  of  property,  or  in  receipt  of  income" 
necessarily  constitute  a  larger  percentage  of  the  total  male  population  than  do  male  "bread- 
winners," yet  in  the  Australian  census  of  1911  male  breadwinners  constituted  69.4  per  cent 
of  the  total  male  population,  and  male  breadwinners  20  years  of  age  or  older  58.9  per  cent. 
Even  if  we  assume  that  the  number  of  income  returns  for  males  under  18  was  negligible  we 
still  are  faced  with  a  discrepancy  difficult  to  account  for. 


OFFICIAL  INCOME  CENSUSES  399 

concentration  of  female  returns  in  the  lowest  income  groups  which  gives 
the  flat  and  modeless  appearance  to  the  total  curve.  The  Australian  fre- 
quency distribution  among  males  only,  is  much  more  like  our  estimated 
American  distribution1  than  is  the  Australian  distribution  among  males 
and  females  together.  Now  the  concentration  of  female  returns  in  the 
lower  income  intervals  would  seem  to  be  the  result  of  a  large  number  of 
returns  made  by  women  and  female  children  receiving  petty  incomes  from 
property  who  would  be  classified,  in  the  Australian  Census  of  Population, 
as  "dependents"  and  not  as  "breadwinners."  2 

Of  the  total  female  population  in  1915,  33.46  per  cent  made  out  income 
cards  and  23.18  per  cent  reported  positive  incomes  (10.28  per  cent  re- 
ported zero  or  negative  incomes).  But  according  to  the  Australian  census 
of  1911,  only  18.6  per  cent  of  the  total  female  population  were  classified 
as  "breadwinners."  Thus  the  women  reporting  positive  incomes  in  L915 
constituted  a  much  larger  percentage  of  the  total  female  population  than 
did  female  "breadwinners"  in  1911  of  the  total  female  population  in  thai 
year.  The  discrepancy  seems  too  great  to  be  accounted  for  by  the  in- 
crease in  the  number  of  women  "breadwinners"  caused  by  the  war.  More 
than  half  of  the  23.18  per  cent  of  the  female  population  reporting  positive 
incomes  in  1915  reported  incomes  under  £50  per  annum.  Moreover,  the 
average  income  of  this  group  was  only  £22  per  annum — under  the  arith- 
metic average  of  the  interval.  This  strongly  suggests  petty  incomes  from 
property,  and  part  time  occupations  such  as  keeping  boarders,  lodgers, 
chickens,  etc.,  rather  than  any  great  increase  in  the  number  of  female 
"breadwinners."  The  fact  that  over  30  per  cent  of  the  returns  made  by 
females  reported  zero  or  negative  incomes  is  further  evidence  that  the 
large  number  of  extremely  small  incomes  reported  was  largely  the  result 
of  the  schedule  calling  for  income  returns  from  all  persons  "possessed  of 
property." 

Negative  incomes  arise  in  general  from  business  or  speculative  losses. 
Bad  as  may  be  the  condition  of  any  laboring  class,  its  members  are  seldom 
faced  with  negative  incomes.  It  is  unlikely  that  many  of  the  2  I'd.  176 
females  reporting  "deficit  and  nil"  were  wage-earners.  They  were  in 
general  the  owners  of  small  investments  which  showed  losses,  such  as 
town  lots  upon  which  taxes  had  been  paid.3 

1  See  Income  in  the  United  Stair* ,  Vol.  I,  pp.  12S,  129,  L32   135. 

2  All  persons  are  classified  as  "  breadwinners"  or  as  "dependents"  by  the  Australian  cei 
Male  "breadwinners"  in  Australia  constituted  in  1911,  according  to  the  census  of  that  year, 
69.4  per  cent  of  the  total  male  population,  female  "breadwinners"  18.6  per  cent  of  the  total 
female  population,  and  total  "breadwinners"  15.0  per  cent  of  the  total  population.  These 
figures  compare  with  American  census  figures  for  1910  showing  males  "gainfully  employed" 
to  constitute  63.6  per  cenl  of  total  males,  females  "gainfully  employed"  18.1  per  cen(  o\ 
total  females,  and  total  "gainfully  employed"  41.5  per  cent  of  the  total  population. 

'It  is  worth  noting  that  in  the  Australian  schedule  "rah-  and  taxes  paid"  could  be  de- 
ducted before  making  an  income  return.  This  consideration  may  be  of  -"me  importance  in 
explaining  the  very  large  number  of  small,  zero,  and  negative  in 


400  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

While  the  frequency  curve  for  Australian  males  is  much  more  like  the 
American  distribution  than  the  curve  representing  both  male  and  female 
Australian  income  recipients,  even  it  shows  a  much  greater  concentration 
in  the  lowest  income  intervals  than  does  the  American  distribution.  This 
can  probably  be  accounted  for  to  some  extent  by  a  large  number  of  income 
returns  for  young  male  "dependents"  "possessed  of  property." 

The  essential  difference  in  appearance  between  the  American  income- 
distribution  curve  which  we  presented  in  Volume  I  and  the  Australian 
curve  of  1915  is,  then,  probably  traceable  to  (1)  Australian  underreporting 
and  (2)  Australian  inclusion  of  a  large  number  of  "dependents"  who  re- 
ceived petty  incomes  from  property  and  who  were  in  no  important  sense 
"breadwinners"  or  "gainfully  employed." 

What  shall  we  say  about  the  desirability  or  undesirability  of  including 
in  an  income  frequency  distribution  dependents  receiving  petty  incomes 
from  property?  While  it  is  true  that  their  incomes,  positive  or  negative, 
are  in  a  way  as  real  as  any  other  incomes,  we  must  remember  that  probably 
almost  all  individuals  over  six  years  of  age  not  only  receive  but  earn  some 
money  income  during  each  year.  Shall  we  then  include  the  entire  popu- 
lation over  six  years  old  in  our  distribution?  As  we  approach  this  theo- 
retical limit  it  is  seen  that  the  concept  becomes  less  and  less  practically  or 
even  theoretically  interesting.  Both  practically  and  theoretically  we  are 
interested  in  the  incomes  of  persons  who,  though  they  be  minors,  have 
"economically  come  of  age"  and  have  entered  into  certain  definite  rela- 
tions to  the  machinery  of  factorial  distribution.  They  are  "breadwinners" 
or  "persons  gainfully  employed,"  and  the  concept  back  of  such  expres- 
sions, though  like  many  economic  concepts  somewhat  of  a  compromise, 
seems  a  good  compromise  for  our  purposes. 

Denning  income  recipient  as  we  have,  we  cannot  use  the  Australian 
material  as  an  aid  to  the  graduation  or  adjustment  of  the  American  income- 
distribution  curve  in  its  lower  ranges.  In  the  upper  income  ranges,  the 
Australian  distribution  offers,  as  we  shall  see,  an  interesting  illustration 
of  the  same  double  swing  (letter  S)  appearance  of  the  curve  seen  in  some 
of  the  more  recent  American  data.1 

1  When  charted  on  a  double  log  scale. 


<* 


CHAPTER  30 
AMERICAN  INCOME  TAX  RETURNS 

At  the  beginning  of  the  preceding  chapter  attention  was  drawn  to  some 
reasons  why  income-tax  returns  cannot  take  the  place  of  an  adequate 
income  census.  Nevertheless  tax  returns  are  in  many  respects  t  he  most 
important  single  source  of  information  we  have  for  estimating  tin?  fre- 
quency distribution  of  incomes.  Were  there  neither  tax  returns  nor  in- 
come censuses  for  any  country,  it  is  difficult  to  see  how  we  could  make 
even  an  interesting  guess  as  to  the  distribution  of  income  in  the  upper 
ranges. 

American  income-tax  data  go  back  to  1913.  We  have  now  at  our  dis- 
posal returns  for  the  seven  years,  1913  to  1919,  inclusive.1  However,  the 
amount  of  information  given  in  the  official  reports  for  the  earlier  years 
1913,  1914  and  1915  is  not  great.  Little  is  shown  beyond  the  number 
of  returns  classified  by  large  income  intervals  and  the  same  returns  classi- 
fied by  districts.  The  1916  tax  report  is  the  most  voluminous  and  in  one 
respect  the  most  adequate  report  which  has  yet  appeared.2  It  contains 
a  set  of  tables  which  we  are  sorry  to  miss  in  the  later  reports,  showing 
the  frequency  distribution  of  incomes  by  separate  occupations.  Other 
features  of  this  report  which  have  been  retained  in  later  years  are  tables 
showing  both  number  of  returns  and  amount  of  net  income  for  each  income 
class  for  the  country  as  a  whole,  and  the  same  by  States;  tables  showing 
the  sources  of  the  income  returned  in  each  income  interval,  that  is  the 
amount  from  wages,  business,  property;  distribution  tables  arranged  by 
sex  and  conjugal  condition;  amounts  of  tax  collected  from  each  income 
class,  etc. 

Changes  in  the  Federal  Income  Tax  Law  during  the  period  have  not 
been  such  as  greatly  to  affect  any  conclusions  which  we  have  drawn  from 
the  data.  From  the  standpoint  of  this  investigation,  probably  the  mosl 
important  changes  in  the  law  relate  to  general  deductions,  professions,  and 
minimum  taxable  income. 

In  the  1916  returns  all  deductions  were  classified  as  general  deductions. 

1  The  Annual  Reports  of  the  Com?rn'ssit>in  r  of  Fnttrnal  '  are  the  sources  for  American 
income-tax  data  for  the  years  L913  to  r.tl.j.  Since  1915  the  data  have  appeared  annually 
as  a  separate  Treasury  Department  publication  entitled  Statistics  of  I 

2  A  peculiarity  of  the  1916  data  is  that  the  returns  are  tabulated  as  family  rather  tlian  in- 
dividual returns.  "The  net  incomes  reported  on  separate  returns  made  by  husband  and  wife 
in  1916  are  combined  and  included  as  one  return  in  the  figures  for  the  several  classes."  Statis- 
tics of  1 ncoim.  1  "J  17,  p.  22. 

401 


402  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

In  the  1917  returns  the  types  of  deductions  classified  as  general  deductions 
were  greatly  reduced;  not  even  contributions  were  included.  In  1918  the 
category  was  enlarged;  contributions,  for  example,  were  again  placed  in 
the  general  deductions  class.  Now  these  changes  affect  greatly  the  rela- 
tions between  net  and  total  income  from  year  to  year.  Reported  net  income 
was  in  19 10  only  75.43  per  cent  of  reported  total  income,  in  1917  it  was 
92.67  per  cent,  in  1918  89.74  per  cent,  and  in  1919  88.51  per  cent.  As 
it  is  the  total  and  not  the  net  income  which  in  the  Statistics  of  Income,  is 
divided  up  according  to  source,  such  fluctuations  as  the  above  interfere 
with  comparisons  of  different  years. 

While  income  from  professions  was  tabulated  separately  in  1916,  in  1917 
it  was  included  in  wages  and  salaries,  and  in  1918  and  1919  in  business. 

In  the  1913  to  1916  returns  exemptions  were  $3,000  per  annum  for  an 
unmarried  person,  or  a  married  person  not  living  with  his  wife  (or  her 
husband),  and  $4,000  per  annum  aggregate  exemption  for  married  persons 
living  together.1  In  the  1917  and  later  returns  these  minima  were  reduced 
to  $1,000  and  $2,000  respectively.  However,  the  increase  in  usefulness  for 
our  purposes  of  the  1917  and  later  returns  was  even  greater  than  the 
lowered  minima  would  suggest.  Not  only  was  the  minimum  taxable 
income  lowered  from  $3,000  to  $1,000,  but  this  reduction  occurred  in  the 
face  of  a  rapidly  rising  general  level  of  incomes.  With  the  rise  in  incomes, 
$3,000  in  1918  or  1919  was  relatively  a  much  smaller  income  than  $3,000 
in  1913.  In  other  words,  we  might  logically  expect  $3,000  to  be  relatively 
further  down  the  income  distribution  curve  in  1918  than  in  1916  or 
1917. 

The  accuracy  of  the  reporting  is,  of  course,  a  matter  of  great  importance 
for  this  investigation.  Now,  while  it  does  not  seem  possible  to  measure 
directly  from  the  data  changes  in  accuracy  of  reporting  during  the  period, 
the  rapid  expansion  of  the  income-tax  organization  and  its  increasing 
attention  to  the  investigation  and  checking  of  returns  establish  the  pre- 
sumption of  greater  statistical  value  in  the  reports  for  the  later  years. 
Offsetting  this  to  an  unknown  degree  is  the  apparently  increasing  amount 
of  "legal  evasion"  in  the  higher  income  classes.  The  reporting  for  the 
years  1913,  1914,  1915  and  1916  appears  to  have  been  peculiarly  bad  in 
the  lower  income  ranges.  The  distinct  improvement  in  1917  (compare 
the  1917  returns  with  those  for  earlier  years  in  Tables  28B,  28C,  28D,  28E, 
and  Charts  27  and  28  of  Volume  I)  seems  associated  with  the  patriotic 
enthusiasm  engendered  by  the  war.  Upon  our  entry  into  the  war,  not 
only  did  the  Bureau  of  Internal  Revenue  make  an  increased  effort  to  ob- 

1  As  the  returns  for  1913  were  for  income  received  for  the  ten  months  March  1  to  December 
31,  1913,  the  actual  minima  used  for  reporting  purposes  were  $2,500  and  $3,333.33  (i.  e.,  \% 
of  $3,000  and  $4,000  respectively). 


AMERICAN  INCOME  TAX  RETURNS  403 

tain  correct  returns  but  individuals,  under  the  spur  of  patriotism,  seem  to 
have  made  less  effort  to  evade.1 

The  remainder  of  this  chapter  is  concerned  largely  with  a  discussioD 
of  possible  irregularities  in  the  distribution  of  non-reporting  and  under- 
statement in  the  later  years.  While  the  total  amount  of  non-reporting 
and  understatement  was  almost  certainly  greater  in  the  returns  for  1917 
than  in  those  for  1918  and  1919,  are  we  sure  that  the  non-reporting  and 
understatement  of  these  later  years  are  not  possibly  more  irregularly  dis- 
tributed along  the  frequency  curve  than  was  the  case  in  1917?  Is  it 
possible  that  the  improvement  in  the  accuracy  of  the  published  returns 
for  1918,  as  compared  with  those  for  1917,  was  so  much  greater  in  the 
income  intervals  under  $5,000  that  the  resulting  change  in  the  shape  of 
the  frequency  curve  may  amount  to  something  almost  akin  to  an  "over- 
adjustment"? 

Income  returns  by  individuals  are  made  on  two  types  of  blanks,  a  blank 
to  be  filled  in  by  persons  reporting  incomes  under  S5,000  and  another 
blank  to  be  filled  in  by  persons  reporting  incomes  over  that  figure.  Now, 
while  the  returns  of  incomes  under  85,000  and  made  on  "under  85,000" 
blanks  are  examined,  investigated  and  audited  in  the  field  soon  after 
their  receipt,  the  investigation  and  audit  of  the  returns  for  incomes  over 
85,000  are  handled  in  Washington.  If  an  individual  has  an  actual  income 
of  $8,000  but  reports  $4,000  (on  an  "under  85,000"  blank),  as  soon  as  a 
Field  Collector  discovers  this  discrepancy,  he  passes  the  matter  over  to 
the  Revenue  Agent  in  charge  of  the  District  for  Field  Investigation.  The 
return,  accompanied  by  the  Agent's  report,  is  forwarded  to  Washington 
for  final  audit.  Thus  the  Field  Collectors  audit  only  returns  thai  are  a 
made  on  "under  $5,000"  blanks  and  (b)  believed,  after  investigation,  to  be 
for  incomes  which  are  actually  under  $5,000. 

While  the  Field  Audit  of  returns  of  these  incomes  is  well  under  way 
before  the  preparation  of  the  statistical  tables  in  the  Statistics  of  Incorm 
and  hence  appears  in  that  tabulation  to  an  unknown  extent,  the  Washing- 
ton audit  of  incomes  over  $5,000  has  hardly  begun  and  hence  the  amended 
figures  for  these  higher  incomes  do  not  appear  in  the  Statistics  of  Incorm  . 
It  is  impossible  to  say  exactly  how  much  of  the  "bulge"  -  which  appears 
in  the  $1,000  to  85,000  interval  on  the  double  log  charts  of  the  1918  and 
1919  tax  income  distributions  is  caused  by  a  difference  in  the  accuracy 
of  the  published  figures  for  returns  of  incomes  under  and  over  $5,000. 
However,  the  Treasury  Department  states  that  "the  Statistics  of  Inc 

1  It  must  not,  of  course,  be  assumed  that  the  increase  in  the  number  of  returns  in  1917  is 
traceable  solely  to  increased  goodness  of  reporting. 

2  Described  in  Chapter  28.  At  many  points  in  the  following  discussion  the  reader  should 
refer  back  to  the  presentation  of  the  case  for  heterogeneity  in  the  income-tax  data  contained 
in  Chapter  28. 


404  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

are  compiled  almost  entirely  from  unaudited  returns  whether  they  be  for 
'under  $5,000'  or  'over  $5,000."'  It  seems  probable  therefore  that  the 
sudden  change  in  slope  of  the  1918  curve  (on  a  double  log  scale)  at  about 
$5,000  can  be  explained  only  partially  by  a  change  in  accuracy  of  the 
published  returns  at  that  point. 

Moreover,  a  considerable  amount  of  evidence,  some  of  which  has  already 
been  presented  in  Chapter  28,  suggests  that  the  "bulge"  on  the  income 
curves  for  the  later  years  corresponds  to  a  reality  on  the  actual  income 
curves.  While  it  may  be  somewhat  over-accented  in  the  published  figures 
for  1918  and  1919,  and  while  the  figures  for  1917  might  have  shown  more 
of  such  a  "bulge"  *  had  the  reporting  been  better,  we  must  not  assume 
that  the  published  figures  for  either  1917  or  1918  give  a  radically  incorrect 
picture  of  the  facts  merely  because  the  income  curves  for  the  two  years 
are  so  different.  The  dogma  of  the  similarity  of  the  income  curve  from 
year  to  year  has  little  evidence  to  support  it. 

It  is  by  no  means  certain  that  even  the  apparently  definite  and  sharp 
angles  on  the  curves  in  this  $4,000  to  $6,000  region  give  an  unreal  picture. 
While  it  is  true  that  we  find  the  same  angles  on  the  wages  and  salaries 
curve,  that  curve  itself  seems  heterogeneous.  An  income  distribution 
curve  composed  of  wage  and  salary  earners  (in  the  ordinary  sense  of  the 
terms)  may  well  cut  an  income  distribution  curve  composed  of  "salaried 
entrepreneurs,"  and  business  and  financial  experts  somewhere  in  the  lower 
income  ranges.  The  angle  on  the  composite  curve  may  give  a  decidedly 
accurate  picture  of  the  facts.2 

Let  us  see  what  light  the  data  throw  on  some  of  these  problems. 
Table  30A  showing  the  number  of  returns  for  the  lower  income  intervals 
in  1917,  1918,  and  1919  and  the  percentage  movements  from  year  to  year 
illustrates  the  great  increase  in  the  number  of  returns  in  the  under-$5,000 
intervals  between  1917  and  the  later  years. 

Chart  No.  28  of  Volume  I,  on  which  are  drawn  the  frequency  distributions 
for  each  year  from  1916  to  1919  on  a  double  log  scale,  shows  the  difference 
in  the  appearance  of  the  income  curves  for  the  three  years.  Examining 
that  chart  we  notice  that  the  1918  data-points,  which  in  the  upper  income 
ranges  run  nearly  as  smoothly  as  the  1917  points,  in  the  $4,000  to  $5,000 
interval  move  abruptly  upwards  and  from  there  on  into  the  lowest  income 
ranges  are  well  above  the  1917  points,  showing  on  the  chart  an  irregular, 
plateau-like  effect  in  these  lowest  income  ranges.  No  such  "plateau" 
is  apparent  on  the  1917  line.     The  year  1919  presents  in  that  chart  a 

1  While  the  1917  curve  runs  much  more  smoothly  in  the  $3,000  to  $6,000  range  than  either 
the  1918  or  1919  curves,  it  is  not  without  the  hint  of  a  bulge  beginning  at  about  $4,500.  See 
p.  412. 

2  In  constructing  the  complete  income  distribution  curve  for  1918,  published  in  Volume  I, 
the  influence  of  changes  in  the  accuracy  of  reporting  around  $5,000  income  was  probably 
overestimated. 


AMERICAN  INCOME  TAX  RETURNS 


m 


TABLE  30A 


Number  of  returns 

Percentage  increases 

Income  intervals 

1917 

1918 

1919 

1918 
over 
1917 

1919 
over 
1918 

1919 
over 
1917 

$2,000-$3,000 
3,000-  4,000 
4,000-  5,000 

838,707 
374,958 
185,805 

1,496,878 
610,095 
322,241 

1,569,741 
742,334 
438,154 

78.47 
62.71 
73.43 

4.87 
21.68 
35.97 

87.16 

97.98 

135.81 

5,000-  6,000 
6,000-  7,000 
7,000-  8,000 
8,000-  9,000 
9,000-10,000 

105,988 
64,010 
44,363 
31,769 
24,536 

126,554 
79,152 
51,381 
35,117 
27,152 

167,005 
109,674 

73,719 
50,486 
37,967 

19.40 
23.66 
15.82 
10.54 
10.66 

31.96 
38.56 

43.48 
43.77 
39. 83 

57.57 
71.34 
66.17 
58.92 
54.74 

similar  appearance  to  1918  though  the  absence  of  small  intervals  in  the 
range  immediately  above  $5,000  disguises  the  characteristics  of  the  curve 
materially.1 

The  change  in  the  contour  of  the  lower  range  of  the  tax  income  frequency 
curve  from  1917  to  1918  and  1919,  is,  as  we  have  mentioned,  associated 
with  a  large  increase  in  the  relative  amount  of  income  from  wages  and 
salaries  in  the  lower  intervals.  Tables  30B  and  30C  are  interesting  in 
this  connection.2 

The  1916  figures  in  Table  30B  are  introduced  simply  because  they 
are  computable.3  However,  too  much  weight  must  not  be  attached  to 
them.  The  191G  returns  are  undoubtedly  extremely  inadequate.  The 
high  percentages  that  year  from  $3,000  income  (the  1916  minimum)  up 
to  about  $10,000  may  possibly  be  the  result  of  the  ease  with  which  salary 
returns  (as  opposed  to  wage,  business,  or  other  returns)  are  obtainable. 
The  $4,000  to  $5,000  interval  is  the  lowest  comparable  interval  for  the 
four  years.4    In  that  interval  the  numbers  of  returns  by  years  were: 

1916-  72,027 
1917-185,805 
1918-322,241 
1919-438,154 


1When  chart  28  was  drawn  for  Volume  I,  only  "preliminary"  large  interval  data  were 
available.    Final  small  interval  data  show  a  "bulge"  very  similar  to  that  seen  in  the  1918  line. 

2  The  1917  official  wages  figures  include  income  from  professions.  The  1018  and  191!)  wages 
figures  do  not.  This  makes  the  increase  in  the  percentages  in  1918  still  more  striking.  In- 
come from  professions  was  tabulated  separately  in  1916,  l>ut  was  included  in  the  voagi  s  figures 
for  that  year  in  order  that  1916  and  1917  might  be  comparable. 

3  No  data  are  available  front  which  corresponding  figures  for  1913,  1914  or  1915  might 
be  calculated. 

*  The  $3,000-84,000  interval  did  not  in  191G,  include  married  persons  making  a  joint  return. 


406 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


TABLE  30B 


PER  CENT  THAT  INCOME  FROM  WAGES  AND  SALARIES  IN  EACH  NET 
INCOME  CLASS  WAS  OF  TOTAL  NET  INCOME  IN  THAT  CLASS 


Income  class 

1916 

1917 

1918 

1919 

$      1,000-$      2,000 
2,000-        3,000 
3,000-        4,000 . 
2,000-        4,000 
4,000-        5,000 

76.98 
66.86 

46.32 
36.30 

79.45 
69.75 
55.21 

(64 . 42) 
48.85 

83.49 
74.53 
61.86 

(69.45) 
52.48 

5,000-      10,000 

10,000-      20,000 

20,000-      40,000 

40,000-      60,000 

60,000-      80,000 

80,000-    100,000 

100,000-    150,000 

150,000-    200,000 

200,000-    250,000 

250,000-    300,000 

300,000-    500,000 

500,000-1,000,000 

1,000,000-1,500,000 

1,500,000-2,000,000 

2,000,000  and  over 

53.31 

36.38 

24 .  60 

17.23 

16.20 

13.37 

13.34 

9.39 

9.14 

7.87 

6.59 

5.21 

4.84 

3.23 

.51 

36.16 

32.94 

26.82 

22.74 

19.67 

18.51 

15.75 

12.65 

12.30 

9.36 

10.17 

6.39 

2 .  83 

3.76 

2.39 

39.59 

38.60 

33.16 

27.88 

25.36 

22 .  16 

18.44 

16.16 

13.07 

12.57 

11.27 

5.42 

7.54 

2.21 

.85 

43.24 
38.11 
33.38 
27.57 
24.01 
22 .  70 
18.75 
15.42 
13.62 
11.92 
10.18 
6.80 
1.60 
10.00 
4.02 

The  amounts  of  income  from  wages  and  salaries  and  from  other  net  income 
in  the  $4,000-15,000  interval  were  year  by  year  in  millions  of  dollars: 


1916 

1917 

1918 

1919 

Wages  and  salaries  a .          

216 
107 

301 

528 

703 
736 

1,029 

<  >ther  net  income 

931 

a  Income  from  professions  is  included  in  the  1916  and  1917  wages  and  salaries  figures. 

The  percentage  changes  in  these  items  from  one  year  to  the  next  were: 

1917  1918  1919 


1916 

Wages  and  salaries 139 . 3 

Other  Net  Income 493.0 


1917 

233.7 
139.4 


1918 
146.4 
126.6 


It  is  plain  that  the  great  increase  in  the  $4,000-15,000  interval  1  in  1917 
was  in  income  from  other  sources  than  wages  and  salaries. 

Table  30C  shows  the  wage  and  salary  figures  compared  with  total  income 
instead  of  net  income  as  in  Table  30B.  It  was,  of  course,  necessary  to  re- 
tain the  net  income  intervals  as  the  data  are  not  classified  in  total  income 

1  As  may  be  seen  from  Tables  30B  and  30C,  the  increase  from  1916  to  1917  in  income  from 
other  sources  than  wages  and  salaries  was  greater  than  the  increase  in  income  from  wages 
and  salaries  not  only  in  the  $4,000-$5,000  interval  but  also  in  the  $5,000-$  1U.U00  interval. 


AMERICAN  INCOME  TAX  RETURNS 


407 


intervals.  Though  the  relations  between  years  are  different  in  this  table 
from  what  they  are  in  the  net  income  table,1  the  distribution  of  the  per- 
centages in  each  individual  year  shows  much  the  same  characteristics  in 
both  tables. 

TABLE  30C 


PER  CENT  THAT  INCOME  FROM  WAGES  AND  SALARIES  IX   EACH   NET 
INCOME  CLASS  WAS  OF  TOTAL  INCOME  IN  THAT  (LASS 


Income  class 
(Net) 

1910 

1917 

1918 

1919 

$      1,000-      $2,000 

74.67 

77.25 

2,000-        3,000 

65.42 

lilt.  14 

3,000-        4,000 

47.74 

51.14 

56.71 

2,000-        4,000 

1 1  82 

(60.15) 

64   12) 

4,000-        5,000 

45.96 

33.60 

44.  s2 

17  12 

5,000-      10,000 

3G.38 

33.87 

33.55 

36.60 

10,000-      20,000 

25.76 

30.  so 

33 .  10 

32  70 

20,000-      40,000 

18.81 

25 .  20 

28.76 

28  36 

40,000-      60,000 

13.75 

21.23 

2:5.79 

23  39 

60,000-      80,000 

12.76 

IS.  56 

21.51 

20.33 

80,000-    100,000 

10  71 

17.61 

19.00 

lit  25 

100,000-    150,000 

11.06 

15.05 

15.92 

1 5  40 

150,000-    200,000 

7.68 

12.01 

13.10 

12    11 

200,000-    250,000 

7.83 

11.75 

1 1  22 

11 .  26 

250,000-    300,000 

6.64 

8.71 

10.73 

9  SO 

300,000-    500,000 

5.50 

9.59 

9.62 

8.19 

500,000-1,000,000 

4.35 

5.88 

4.37 

5.38 

1,000,000-1,500,000 

4.12 

2.62 

6.29 

1 . : ;  1 

1,500,000-2,000,000 

2.82 

3  5 1 

1.81 

s  51 

2,000,000  and  over 

.47 

2 .  18 

.63 

.32 

The  percentages  in  Tables  30B  and  30C  show  each  year  a  sudden  increase 
(as  we  approach  the  lower  income  intervals)  somewhere  in  the  84,000  t<> 
$5,000  or  the  $5,000  to  $10,000  interval.  At  exactly  what  point  each  year 
do  these  sudden  increases  seem  to  occur?  Charts  30D,  30E  and  30F  pre- 
sent the  material  in  a  slightly  different  form.  They  illustrate  the  relation- 
ship between  the  average  income  from  wages  and  salaries  in  each  net 
income  interval  and  the  average  total  income  in  the  same  net  income  in- 
terval for  the  years  1017,  1918  and  1019  on  a  double  log  scale.  The  1918 
and  1919  charts  immediately  suggest  the  improbability  of  being  able  to 
describe  the  data  by  a  single  simple  mathematical  expression.  To  the 
1918  data-points  have  been  applied  two  distinct  mathematical  curves, 
which  fit  the  data  remarkably  well  and  intersect  at  about  $6,700  total 
income.  The  curve  fitted  to  the  upper  income  ranges  is  a  parabola,  while 
that  fitted  to  the  lower  income  ranges  is  an  hyperbola,  one  of  whose  asymp- 
totes is  the  45°  line  which  divides  the  chart  into  a  "possible"  and  an  "im- 

1  Some  reasons  for  the  changes  in  relation  of  net  to  total  income  from  year  to  year  are 
mentioned  on  pages  401  and  102. 


408 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S 


CHART  30  D 

US  IMC0ME  TAX  RETURNS                                                                              / 

1917                                                                                            / 

3 

< 

a 

o 

AVERAGE  INCOME                                                                               / 

FROM                                                                                                                                        / 

WA6ES  AND  SALARIES                                                                                / 
AMD                                                                                                                     / 

AVERA6E  TOTAL  INCOME                                                              / 

IN                                                                                                      / 

EACH  NET  INCOME  INTERVAL                                                     / 

Q 
O 

Scales  Logarithmic                                                  / 

-100  g 

z 

< 

CO 

P 
-50  § 
-40  H 

s                                                          °  ^^"^ 

o 

-30  23 
5 

-20  j 

< 

CO 

0 

o 
WAGES  AND 

-5    S 

o 

-4     £ 

O 
-2     Z     / 

°  / 

4 

TOTAL  INCOME  IN  THOUSANDS  OF  DOLLARS 

i 

3     4     5              10             20       30   40  50            100           200     800  400  500 

1.000 

2,000  3,0001000 

X 


AMERICAN  INCOME  TAX  RETURNS 


409 


410 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  30F 


< 
-J 
j 
o 

Q 
U. 

100C 

CO 

a 
z 

< 

50  g 
40  = 


US  INCOME  TAX  RETURNS 
1919 

AVERAGE  INCOME 

FROM 

WAGES  AND  SALARIES 
AVERAGE  TOTAL  INCOME 

IN 

EACH  NET  IMCOME  INTERVAL 
Scales  Logarithmic 


TOTAL  INCOME  IN  THOUSANDS  OF  DOLLARS 

10      20   30  40  50     100     200  300  400  500 

'  ,  ,       i      ,  ,  , 


1,000 


2,000  3,000  4,000 

i 


AMERICAN  INCOME  TAX  RETURNS 


411 


possible"  area.     The  equations  of  the  two  (1918)  curves  on  a  double  log 
scale  are  (I)  y  +  3.92945  —  2.744  x  4-  .22  x  -  =  0  (parabola) 

(II)  y  -  —  3.981909  y--  .867240  xy  4-  3.981909  x  —  .132754  z  2 
—  .060262  =  0  (hyperbola) 
As  it  is  difficult  to  estimate  accurately  by  eye  the  goodness  of  fit  of  a  curve 
to  data  when  charted  on  a  log  scale,  Table  30E  is  introduced: 

TABLE  30E 

WAGES  AND  INCOME  IN  THE  1918  INCOME  TAN  RETURNS 


Net  income 
intervals  (1918) 


S      1,000-8 

2,000- 

3,000- 

4,000- 

5,000- 

6,000- 

7,000- 

8,000- 

9,000- 

10.000- 

1 1 .000- 

12,000- 

13,000- 

14,000- 

15.000- 

20,000- 

25,000- 

30,000- 

40.000- 

50,000- 

( ;o  ooo- 

7(1.000- 

80,000- 

90,000- 

100.1)01) 

150.000- 

200,000- 
250,000- 
300.000- 
400,000- 

.-,1)0,01)0 

7  :,o.ooo-l 
1.000.000-1 
I..",  00. 000-2 
•j. ooii  ooo  3 
3,000,000-4 


2,000. 

3.000. 

4.000. 

5,000. 

6,000. 

7.000. 

8,000. 

0,000 
10,000. 
11.000. 

12,000 . 
13.000. 

14,000. 
15,000. 
20,000. 

25,000. 
:;o.000. 
lo.OOO. 
50,000. 
60,000. 
70.000. 
S0.000 

90,000. 

100.000. 

150,000 

200.000. 
2.-0.000 
300.000 
400,000 . 
500,000 . 
7  r.o.OOO. 

.000.000 
..-,00,000. 
,000,000 . 
000,000. 
000,000 


Average 
total  income 


8      1,566 

2,583 

3,710 

4,866 

6,388 

7,620 

8,952 

10,148 

11,214 

12.207 

13,707 

14,263 

15,922 

16.77s 

20,167 

25,859 

31.704 

39,644 

52,319 

64,327 

74. sis 

90.437 

98,379 

111,515 

139.. -,20 
2 11, 0.V.i 
259,487 
317,578 
109,756 
.',14,882 
765,!  K)5 

1.013. sir, 

1,426,182 

2.0s  1.71.-, 

3.203.07.; 
1.515.732 


Average  income  from 
wages  and  salaries 


Data 


8  1,169 

1.600 

l.so7 

2,181 

2,192 

2.537 

2,963 

3,341 

3,747 

4,171 

4,555 

4,806 

5.520 

5,801 

6,375 

7,891 

9,196 

10,711 

12.039 

14.963 

10.570 

is. 701 

19,273 

20,447 

22  212 

27J58 

29,107 

34,076 

44,393 

38,967 

27,582 

01.183 

89,710 

37,118 

51 '.  17s 

11,013 


Mathematical 
curves 


8  1.17s 
1.052 
1,955 
2,117 
2,216 
2,555 
3,012 
3,407 
3,760 
4,07s 
4,542 
4,709 
5,204 

5,  155 
6,400 
7,860 
9,211 

10,872 
13. 102 

15.000 

16,539 

IS. 150 
10.351 
20,682 
23,163 
27,829 

30  0  1s 
32.220 
3,1.7s.; 
36.sl7 
39,765 
41.220 
12,199 
12.100 
10.720 
38,753 


Percentages 
that  data  are  of 
mathematical 


curves 


99  2 

102  3 
97.0 

103.0 
98  9 

99. 

OS 

98. 

99. 
102 
100. 
102. 


.3 

.4 

1 

.7 
3 

.3 
1 


106.2 

106.3 

99.6 


1 

s 

.5 


100. 
gg 

98 
95.8 

99.3 
100.2 
101.7 

99.6 

95.9 

99  7 

96.8 

105  7 

127  6 

105.8 

69.  1 

148.4 

212.6 

ss    0 

123  2 

28   1 


The  data  of  table  30E  move1  rather  erratically  in  the  intervals  above 
8300,000  per  annum  income.    This  is  natural  in  view  of  the  small  number 


412 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


of  cases  in  these  upper  intervals.  There  were  only  627  returns  reporting 
net  incomes  of  over  $300,000  per  annum;  this  is  less  than  one  seventieth 
of  one  per  cent,  of  the  total  number  of  returns.  In  the  28  intervals  under 
$300,000  per  annum  14  of  the  percentages  show  the  data  within  one  and 
one  half  per  cent,  of  the  mathematical  values. 

These  mathematical  curves  have  not  been  introduced  as  being  in  any 
sense  the  "law"  of  the  data  but  merely  to  emphasize  how  smoothly  the 
data  curves  run  and  yet  how  unmistakable  a  sensation  they  give  us  of  two 
parts,  one  above  about  $6,700  total  income  and  one  below  that  figure.1 
It  would,  of  course,  be  quite  impossible  to  get  any  sort  of  approximation 
to  the  lower  range  data  by  producing  the  parabola  fitted  to  the  upper 
income  ranges.     How  impossible  may  be  seen  from  Table  30EE. 

TABLE  30EE 


WAGES  AND  INCOME  IN  THE  1918  INCOME  TAX  RETURNS 


Average 

total 
income 

Average  income  from  wages 
and  salaries 

Percentages  that 
data  are  of 

intervals  (1918) 

Data 

Hyper- 
bola 

Para- 
bola 

Hyper- 
bola 

Para- 
bola 

$4,000-$5,000 
3,000-  4,000 
2,000-  3,000 
1,000-  2,000 

$4,866 
3,710 
2,583 
1,566 

$2,181 
1,897 
1,690 
1,169 

$2,117 
1,955 
1,652 
1,178 

$1,574 

1,152 

745 

391 

103.0 
97.0 

102.3 
99.2 

138.6 
164.7 
226.8 
299.0 

The  1919  data  show  the  same  two-curve  appearance  as  the  1918  data. 
This  may  be  clearly  seen  from  chart  30F.2  The  intersection  of  the  two 
curves  would  be  at  about  $7,100  instead  of  $6,700  as  on  the  1918  chart. 
Is  there  any  sign  of  such  a  change  from  one  curve  to  another  on  the  1917 
data?  There  seems  to  be.  Chart  30D  shows  the  1917  data  with  a  parabola 
fitted  to  the  observations  above  the  first  interval.  This  curve  and  Table 
30D  give  us  a  strong  impression  that  the  first  interval  cannot  be  described 
by  any  simple  curve  which  describes  the  remainder  of  the  data.  The  same 
two-curve  characteristics  as  the  1918  and  1919  data  are  strongly  suggested. 

The  equation  of  the  1917  parabola  on  a  double  log  scale  is  y  +  1.8417  — 
1.8346  x  +  .124  x  2  =  0.  The  poorness  of  the  fit  to  the  first  interval  and 
the  comparative  goodness  of  the  fit  to  the  remainder  of  the  data  as  high  as 
$250,000  per  annum  may  be  seen  from  Table  30D.  If  the  data  were 
numerous  enough  to  permit  us  fitting  two  curves  they  would  probably 
intersect  at  about  $4,500. 

1  An  alteration  in  the  size  of  the  intervals  in  which  the  data  are  quoted  by  the  Income  Tax 
Bureau  would  of  course  change  the  data  curve  to  some  extent.  However,  taking  the  intervals 
as  they  conic  and  fitting  the  curves  to  them  we  get  the  unmistakable  impression  of  great  regu- 
larity.    It  seemed  scarcely  worth  while  to  fit  the  curves  to  areas  rather  than  points. 

2  The  story  told  by  Chart  30F  is  so  plain  it  seemed  hardly  necessary  to  fit  another  set  of 
curves. 


AMERICAN  INCOME  TAN  RETURNS 


413 


TABLE  30D 


WAGES  AND 

INCOME  IN 

THE  1917  INCOME  TAX  RETURNS 

Average 
total  income 

Average  income  from 
wages  and  salaries 

Percent a«es 
that  data  are  of 

intervals  (1917) 

Mathematical 

mathematical 

Data 

curve 

curve 

$      2,000-$      4,000 .  .  . 

$      3,059 

$1,280 

$1,101 

116.3 

4,000-        5,000... 

4,818 

1,619 

1,688 

95.9 

5,000-      10,000... 

7,210 

2,442 

2,422 

100.8 

10,000-      20,000    . 

14,61':; 

4,517 

1  374 

103.3 

20,000-      40,000    . 

29,236 

7.368 

7,411 

99.4 

40,000-      60.000 .  .  . 

51,940 

11,024 

11,03s 

99.9 

60.000-      80,000... 

72,811 

13,516 

13,699 

98.7 

80,000-    100,000 .  .  . 

93,742 

16,510 

15,992 

103.2 

100,000-    150,000.  .  . 

126,'.  179 

19,108 

19,081 

100.1 

150,000-    200,000 .  .  . 

181,156 

21,758 

23,147 

94.0 

200.000-    250,000 .  .  . 

23:;.  ssi) 

27,501 

26,388 

104.2 

250,000-    300,000 .  .  . 

293,905 

25,587 

29,478 

86.8 

300,000-    500.000 .  .  . 

398,.",  17 

38,204 

33,877 

112.8 

500,000-1,000,000.  .  . 

740,769 

43,558 

43,632 

99.8 

1,000,000-1,500,000.  .  . 

1.294,619 

33,973 

52,845 

64.3 

1,500,000-2,000,000.  .. 

1,812,388 

64,201 

58,358 

110.0 

2,000,000  and  over. .  .  . 

4,551,718 

99,132 

71,945 

13.7.8 

Both  the  regularity  of  the  data  curves  and  the  positions  of  the  inter- 
sections of  the  mathematical  curves1  might  suggest  that  heterogeneity 
of  the  wages  and  salaries  data  was  the  primary  cause  of  the  irregularity 
in  the  total  income  curve.  The  position  of  the  points  of  intersection  of  the 
mathematical  curves  might  seem  inconsistent  with  a  sudden  change  in 
accuracy  of  reporting  at  exactly  $5,000. 

However  this  argument  does  not  appear  so  conclusive  when  we  examine 
the  actual  amount  of  wages  in  each  income  interval.  The  constitution  of 
the  reported  income  each  year  may  be  seen  rather  plainly  in  ('harts  28T, 
28U,  28V,  28W,  28X,  28Y,  28Z,  and  28AA.2  These  chart  -  show  the  number 
of  dollars  per  dollar  income  interval  reported  in  each  income  interval  by 
sources  for  the  years  1910  to  1919. 3  They  not  only  illustrate  the  facl  that 
the  constitution  of  the  income  curve  changes  radically  as  we  move  from 
small  to  large  incomes  but  also  picture  the  salient  characteristics  of  these 
changes;  each  source  curve,  being  charted  on  a  double  log  scale,  may  be 

>  Particularly  the  1919  intersection  which  is  above  the  s~>, ooo  to  so, not)  m  I  income  interval. 

«  See  pages  3S5  to  392. 

3 The  five  lines  representing  wages,  business,  rents,  interest,  and  dividends  were  found  to 
interweave  to  such  an  extent  when  drawn  on  one  chart  that  two  charts  were  drawn  for  each 
year,  one  representing  wages  and  business  and  the  other  incomes  from  property. 

Wages  includes  "salaries,  wages  and  commissions"  and  in  L916  and  L917  "professions  and 
vocations." 

Business  includes  "business."  "partnerships,  personal  service  corporations,  estates,  and 
trusts,"  and  "  profits  from  sales  of  real  estate,  stocks,  bonds,  etc.,"  and  in  1918  and  L919 
"professions." 

Hints  includes  royalties. _ 

I  nit  n  si  includes  unclassified  investment  income. 


414  PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 

seen  at  a  glance  in  its  entirety.  We  see  from  Charts  28X  and  28Z  that, 
though  the  ratio  of  the  income  from  wages  and  salaries  to  total  income 
may,  when  charted,  show  an  angle  above  $5,000,  the  entire  "bulge"  on 
the  wages  and  salaries  curve  itself  occurs  in  the  under-$5,000  intervals 
both  in  1918  and  1919.  Moreover,  while  "wages  and  salaries"  is  the  larg- 
est item  in  these  lowest  income  intervals,  and  hence  is  the  controlling  factor 
in  determining  the  peculiar  shape  of  the  total  curve  in  this  region,  it  is  not 
the  only  item  showing  irregularities  and  "bulges."  Some  of  these  move- 
ments are  extremely  difficult  to  explain.  Why  should  a  "bulge"  appear 
on  the  lower  income  ranges  of  the  "rent"  curve  in  1918  and  by  1919  be- 
come pronounced?  *  The  appearance  of  a  bulge  on  the  wage  curves  in 
1918  and  1919  seems  quite  explicable  on  the  basis  of  heterogeneity  within 
the  wage  and  salary  data  themselves  but  one  feels  a  shade  less  confidence 
in  any  explanation  of  why  that  curve  moved  in  this  peculiar  manner  if  the 
explanation  does  not  seem  also  clearly  applicable  to  the  rents  curve  which 
moved  in  an  apparently  similar  manner. 

1  A  mere  increase  in  rents  will  not,  of  course,  account  for  this  unevenness  in  their  distribu- 
tion. 


CHAPTER   31 

INCOME  DISTRIBUTIONS  FROM  OTHER  SOURCES  THAN 

INCOME  TAX  RETURNS 

Concerning  the  frequency  distribution  of  incomes  over  $3,000  or  $4,000 
per  annum  we  have  almost  no  information  aside  from  the  income  tax 
returns.  Existing  wage  distributions  and  non-tax  income  distributions 
almost  never  reach  higher  than  $2,500  or  83,000  per  annum. 

Even  in  the  lower  income  ranges  (under  say  82,500  or  83,000)  most  of 
the  existing  non-tax  income  distributions  are  of  little  use  in  our  problem. 
In  the  first  place  there  are  less  than  half  a  dozen  distributions  of  this  sort 
which  are  not  such  small  samples  as  to  prevent  us  feeling  much  confidence 
in  their  representative  nature.1  An  even  more  serious  defect  of  every  such 
distribution  known  to  us,  with  one  exception'-  is  that  the  purpose  for  which 
the  data  have  been  collected  almost  inevitably  makes  them  extremely 
ill-adapted  to  our  use.  For  example,  one  of  the  largest  recent  sample-  is 
prefaced  by  almost  a  page  of  introduction  explaining  what  types  of  re- 
cipients were  purposely  excluded.3  This  is  rather  typical.  To  base  upon 
such  distributions  any  wide  generalizations  with  respect  to  the  income 
curve  for  the  country  as  a  whole  or  even  for  the  localities  from  which  such 
data  were  collected  would  be  unwarranted. 

Furthermore,  almost  without  exception  these  studies  in  income  distri- 
bution are  on  &  family  basis.     While  it  is  sometimes  possible  to  make  a 

1  For  example,  Chapin's  well-known  investigation  into  the  distribution  of  incomes  includes 
only  391  workingmen's  families,  and  the  best  distribution  of  farmers'  incomes  includes  only 
401   farmers  from  a  single  state. 

2  Arthur  T.  Emery's  distribution  of  income  among  I960  Chicago  households. 

3  "In  studying  the  sources  of  income  and  the  important i  each  source  with  relation  to 

the  total  inc me  of  a  family  the  following  limitations  to  the  type  of  family  schedules  should 
be  kept  in  mind.  No  families  were  scheduled  in  which  there  wire  children  who  lived  as 
boarders,  that  is,  paid  a  certain  sum  per  week  or  per  month  for  board  and  spent  the  remainder 
of  their  earnings  or  salary  as  they  saw  lit.  X<>  families  were  scheduled  which  kept  any  hoard- 
ers. The  number  oi  lodgers  to  be  kepi  by  a  family  was  limited  to  three  at  any  one  time.  No 
families  wen-  scheduled  in  which  the  total  earnings  of  the  family  did  not  equal  75  per  cent,  or 
more  of  the  total  income.  It  will  be  seen  thai  these  limitations  excluded  a  large  number  >>f 
families  and  this  materially  affects  the  percentage  of  families  having  earnings  from  children 
and  income  from  lodgers,  and  also  results  in  showing  a  larger  percentage  of  the  total  income 
as  coming  from  the  earnings  <>f  the  husband  than  would  lie  the  ease  if  the  type  of  families 
named  had  not  been  excluded  from  tic  study.  It  also  reduces  the  actual  amount  per  family 
earned  by  children  and  received  from  boarders  or  lodgers  that  would  lie  shown  in  case  a  cross 
section  of  a  community  including  all  the  types  mentioned  were  used.    The  object  in  making 

the  exclusions   named   was   to  secure   families  dependent    for  support,   as   largely  as   possible, 

upon  tin'  earnings  of  the  husband.  <  >f  course,  it  was  impracticable  to  secure  a  sufficient 
number  of  families  in  which  the  only  source  of  income  was  the  earnings  <>f  the  husband,  but 
in  following  the  course  named  the  percentage  of  families  having  an  income  from  other  sources 
has  been  very  lamely  reduced."  "Cosl  of  Living  in  the  United  States — Family  Incomes," 
Monthly  Labor  Bi  view,  Dec.,  1919,  p.  30. 

415 


416 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


rough  estimate  of  the  individual  incomes  from  the  family  data,  such  es- 
timates are  not  what  are  needed  for  our  purposes.  They  can  show  nothing 
but  the  distribution  of  income  among  the  individuals  constituting  these 
families  and  these  families  are  almost  inevitably  so  chosen  as  to  make  the 
individuals  composing  them  not  representative  of  income  recipients  at 
large.  Analysis  of  the  distribution  of  earnings  among  the  individual  mem- 
bers of  such  families  discloses  an  heterogeneity  so  extreme  as  to  result  in  a 
pronouncedly  duomodal  distribution  curve.  The  fathers'  incomes  have  one 
mode  while  the  children's  incomes  have  another.  Chart  31A  showing  a 
natural  scale  frequency  distribution  of  earnings  among  2811  individuals 
in  2170  families  in  1918  1  exhibits  this  duomodal  appearance  in  a  striking 
manner.    The  "families"  had  been  so  chosen  as  to  exclude  both  young 


400 


3 

< 

300  9 

> 
a 


I 


110(1 


III!) 


200 


FREQUENCY  DISTRIBUTION 
OF 
ANNUAL  EARNIN6S  OF  2eil  INDIVIDUALS 
IN 
2170  FAMILIES  IN  THE  U.S.  IN    19)8. 

Jounce:  Burepu  of  i  ftaoR  Statistics 
&cnu:s  WaTURfrt. 


CUAIIT31A 


400 


600 


800 

-a— 


1,000 


ANNUAL  EARNINGS 

1,200  1,400 


1,000 


1,800 

I 


2.000 


2,2ft 


-zm 


married  couples  having  no  children  and  unmarried  but  independent  wage 
earners.  Investigations  planned  to  bring  out  the  economic  character- 
istics of  such  "typical  families,"  while  they  may  be  extremely  valuable 
for  the  purposes  for  which  they  were  undertaken,  are  necessarily  of  but 
little  use  in  the  construction  of  a  frequency  distribution  of  all  individual 
incomes  in  the  community.  Moreover,  even  if  we  were  attempting  to 
construct  a  family  and  not  an  individual  distribution  these  data  would  not 
generally  be  particularly  helpful  for,  in  addition  to  the  exclusions  just 
mentioned,  further  narrow  and  rigid  restrictions  are  usually,  and  for  the 
purposes  in  view  quite  properly,  imposed  upon  the  definition  of  the  "  typical 
family." 

1  This  is  a  sample  from  the  12,090  white  families  referred  to  in  note  3,  page  415  The 
detailed  figures  of  this  sample  were  tabulated  for  us  by  the  Bureau  of  Labor  Statistics. 
They  cover  15  cities  chosen  as  representative  of  the  whole  list.  Each  one  of  the  15  cities 
shows  the  duomodal  appearance  referred  to  in  the  text. 


DATA  FROM  OTHER  SOURCES  THAN  TAX  RETURNS         417 

As  incidentally  remarked  above,  there  is  one  non-tax  income  frequency 
distribution  to  which  many  of  the  above  criticisms  do  not  apply.  It  is 
the  distribution  of  income  among  19G0  Chicago  "households"  in  1918  from 
an  investigation  made  by  Mr.  Arthur  T.  Emery  for  the  Chicago  Daily 
News.1  Instead  of  attempting  to  describe  a  "typical  family"  Mr.  Emery 
attempted  to  discover  the  "household"  income  of  each  person  whose  name 
came  at  the  top  of  a  page  in  the  Chicago  city  directory.  Mr.  Emery  en- 
countered many  difficulties  in  attempting  to  follow  out  this  scheme  and 
has  himself  pointed  out  sources  of  error.2  Notwithstanding  the  inevitable 
difficulties,  Mr.  Emery  seems  to  have  made  a  real  effort  to  obtain  a  scien- 
tific sample.  While  his  distribution  shows  unmistakable  irregularities, 
it  is  in  many  respects  for  our  purposes  the  most  interesting  and  suggestive 
recent  non-tax  income  distribution  available. 

Finally,  it  seems  impossible  to  obtain  from  these  distributions  any  but 
extremely  general  conclusions  concerning  the  relation  between  income 
from  effort  and  income  from  property.  The  data  have  almost  always  3 
been  so  chosen  as  to  eliminate  any  families  obtaining  an  appreciable  frac- 
tion of  their  income  from  property.  While  they  may  give  us  some  clues 
as  to  the  shape  of  the  upper  range  tail  of  the  wage-earners'  income  distri- 
bution curve  4  they  can  tell  us  little  about  even  the  upper  tail  of  the  general 
income  curve  and  almost  nothing  about  the  lower  income  tail  of  either  the 
wage-earners'  or  the  general  income  curve. 

1  While  the  Bureau  is  not  at  liberty  to  publish  this  material  we  were  permitted  to  make 
what  use  we  could  of  it  in  constructing  our  income  curve  for  the  country. 

2  In  a  letter  to  the  Bureau  he  writes,  "There  was,  however,  one  important  source  of  error 
in  this  method — the  poorer  and  middle  class  residents  were  willing  to  talk,  and  with  the  care- 
fully trained  approach  of  the  investigator,  the  upper  class  was  also  won  over,  but  we  found 
in  the  wealthy  districts  that  the  butler  and  'not  at  home'  caused  a  lar<re  amount  of  travel 
on  the  part  of  the  investigator,"  and  often  a  final  failure  to  obtain  any  report. 

3  These  remarks  do  not  apply  to  the  distribution  of  income  among  the  401  fanners  or  Mr. 
Emery's  distribution.  However,  the  Bureau  has  no  figures,  in  the  case  of  Mr.  Emery's  dis- 
tribution, for  income  from  property. 

4  Compare  pages  37S,  37'J,  360. 


CHAPTER  32 
WAGE  DISTRIBUTIONS 

There  is  in  all  an  immense  amount  of  American  wage  data.  On  the  other 
hand,  as  an  investigator  gets  into  his  subject,  he  begins  to  realize  that  the 
material  is  more  remarkable  for  its  fragmentary  nature  than  for  its  amount 
— great  as  that  may  be.  For  no  recent  year  can  he  obtain  wage  distribu- 
tions for  more  than  about  8  per  cent,  of  those  gainfully  employed.  Of 
course,  if  these  8  per  cent,  were  scattered  over  the  different  types  of  em- 
ployment and  localities  in  any  truly  random  fashion,  and  if  their  wages 
were  uniformly  reported,  much  might  be  done  with  the  material.  As 
things  are,  however,  whole  occupations  as  important  as  agricultural  labor 
and  trade  are  almost  unrepresented.  Moreover,  as  we  are  interested  in 
the  amount  of  wages  actually  received  during  the  year,  it  is  rather  dis- 
couraging to  find  that  this  is  the  one  type  of  distribution  which  practically 
never  occurs.  Distributions  of  amounts  actually  earned  in  a  month  are 
almost  as  rare.  There  are  a  few  distributions  of  amounts  actually  earned 
in  a  week  or  fortnight,  but  the  great  majority  of  wage  distributions  are 
distributions  of  wage  rates — figures  by  the  hour  being  the  commonest — or 
of  hypothetical  earnings,  generally  known  as  full-time  earnings  per  week. 

Now  it  is  in  general  impossible  to  construct  a  wage  distribution  for  earn- 
ings from  a  distribution  of  rates.  Earnings  depend,  of  course,  not  only  on 
rates  but  also  on  hours  worked.  However,  we  seldom  know  anything  about 
the  distribution  of  hours  worked  and  almost  never  do  we  know  anything 
about  the  relation  between  rates  and  hours  worked.  Chart  32A  illustrates 
how  violent  may  be  the  difference  in  shape  of  the  earnings  and  rates  curves 
for  the  same  individuals.1  The  earnings  distribution  in  this  particular 
case  shows  not  only  a  much  greater  scatter  than  the  rates  distribution  but 
is  of  an  entirely  different  shape,  as  may  be  seen  from  Chart  32B  where  the 
data  are  drawn  on  a  double  log  scale.  Chart  32C  shows  the  distribution 
of  hours  worked  in  a  week  for  the  same  individuals.  Now,  though  the 
slaughtering  and  meat  packing  industry  may  be  an  extreme  example, 
what  evidence  we  have  suggests  that  distributions  of  rates  and  of  earnings 
are  rarely  in  close  agreement.  Moreover  the  relation  of  the  one  distribu- 
tion to  the  other  changes  as  we  pass  from  industry  to  industry.2 

1  43,063  Male  Employees  in  the  Slaughtering  and  Meat  Packing  Industry  in  1917.  Bureau 
of  Labor  Statistics,  Bulletin  252.  For  purposes  of  comparison  the  two  distributions  are  so 
placed  that  the  frequency  curves  show  the  same  arithmetic  means  and  areas. 

2  Resulting  largely,  of  course,  from  the  varying  types  of  distributions  of  hours-worked-in- 

418 


WAGE  DISTRIBUTIONS 


410 


CHART  32  A 

FREQUENCY  DISTRIBUTIONS  OF  RATES  OF 
WAGES  PER  HOUR  AND  EARNINGS  PER  WEEK 
FOR    A3, 063  MALE  EMPLOYEES  in  THE 
SLAUGHTERING  AND  MEAT  PACKING   INDUSTRY 
IN  THE   US  IN  1917. 
Soukce    Burt£Ru  of ineoR SrmisTics  Bcn.L£n/y  zsz 


% 


4e. 


% 


V"L 


% 


% 


CHART  32 B 


FREQUENCY  DISTRIBUTIONS  OF  RATES  OF  WAGES  PER  HOUR 

AMD  EARNINGS  PER  WEEK  FOR  43,063  MALE  EMPLOYEES 

IN  THE  SLAUGHTERING  AND  MEAT  PACKING  INDUSTRY  IN 

THE   U.S.  IN  ISI7. 

SCU/?C£     BUftEftU  Of  LABOR  &TftTISTICS    BULLETIN  2SZ 
■5CflJ.CS      LOGRKITH/MC. 


420 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


-  5,000 


4,000 


1,000 


J 


CHART32C 


3,000    < 

s 

o 

as 

3 

03 

s 

2.000    z 


FREQUENCY  DISTRIBUTION 
OF 
HOURS  WORKED    IN  A  WEEK 

FOR 

43,063   MALE   EMPLOYEES 

IN  THE 

SLAUGHTERING  AND  MEAT  PACKING  INDUSTRY 

INTHE 

U.  S.  IN    1317. 

Source  Bukcw  of  L  tiBOf? St/vt/stics 

8<JLLETIH,2SZ 


20 


30 


HOURS  WORKED  IN  THE  WEEK 
50  60 


70 

-J— 


80 

_1_ 


The  same  difficulty  as  we  find  in  any  attempt  to  estimate  the  distribu- 
tion of  earnings  per  week  from  the  distribution  of  rates  per  hour  seems 
inherent  in  any  attempt  to  estimate  the  distribution  of  earnings  in  a  year 
from  the  distribution  of  earnings  in  a  week.  The  unknown  distribution  of 
weeks  worked  in  the  year  must  seriously  affect  our  results.1 

Estimating  the  frequency  distribution  of  wages  earned  in  a  year  for  an 
industry  from  the  frequency  distribution  of  wages  earned  in  another  year 
in  the  same  industry,  if  we  had  such  data,  would  involve  us  in  a  similar 
difficulty.  Even  though  we  knew  the  total  number  of  individuals  gainfully 
employed  and  their  total  wage  bill  each  year  and  also  the  frequency  dis- 
tribution of  earnings  for  one  of  the  years,  estimating  the  frequency  dis- 
tribution for  the  other  year  would  be  hazardous.  While  some  rates  dis- 
tributions for  the  same  industry  in  the  same  locality  show  symptoms  of 
not  changing  in  shape  very  radically  from  year  to  year,2  this  does  not  seem 


the-week  (month  or  year)  in  different  industries.  Illustrations  of  lack  of  uniformity  in  the 
relation  between  rates  and  earnings  of  the  same  persons  for  the  same  period  but  in  different 
industries  were  worked  up  from  Professor  Davis  R.  Dewey's  Special  Report  on  Employees 
and  Wages  for  the  12th  Census. 

1  We  have  no  distributions  of  amounts  earned  in  a  week  and  in  a  year  for  the  same  industry, 
with  which  to  illustrate  this  point  directly. 

2  For  example,  the  distribution  curve  for  wages  per  week  among  Massachusetts  factory 
workers  shows  a  moderate  degree  of  similarity  of  shape  from  year  to  year. 

Professor  H.  L.  Moore  (Political  Science  Quarterly,  vol.  XXII,  pp.  61-73)  discussed  the 
fluctuation  from  1890  to  1900  in  the  variability  of  wage  rates  in  a  total  made  up  of  thirty 


WAGE  DISTRIBUTIONS 


421 


a  sufficient  reason  for  assuming  the  same  of  earnings  distributions.  The 
shape  of  the  distribution  representing  hours  or  days  worked  in  the  year 
may  be  expected  to  change  greatly  from  year  to  year  with  alternations  of 
prosperity  and  depression.1 

What  little  evidence  we  possess  suggests  that  wage  distributions  2  for 
individuals  of  the  same  sex  in  the  same  industry  at  the  same  date,  but  in 
different  localities,  though  generally  more  dissimilar  in  shape  than  distri- 
butions for  the  same  industry  in  the  same  place  but  at  different  dates, 
are  less  unlike  one  another  than  distributions  for  different  industries  though 
in  the  same  place  and  at  the  same  time.  The  variation  in  shape  of  such 
distributions  for  different  industries  is  often  extreme.3 

selected  manufacturing  industries.  These  distributions  (for  1890  and  1000)  illustrate  both 
the  similarity  and  the  difference  in  rates  distributions  between  the  two  years. 

1  For  example,  what  little  information  we  have  points  to  the  "scatter"  of  the  days-worked- 
in-a-year  distribution  being  much  greater  in  a  year  of  depression  than  in  a  year  of  prosperity. 

The  extreme  variations  in  shape  of  the  income  distributions  for  the  same  1240  individuals 
in  the  years  1014  to  1919  as  seen  in  the  Statistics  of  Income,  1919,  page  30,  are  interesting  in 
this  connection. 

-  Whether  earnings  or  rates. 

'Examples  of  this  are  numerous.  Charts  32D  and  32E  show  the  distribution  of  wanes 
per  week  among  Massachusetts  males  working  in  (a)  the  boot  and  shoe  industry  and  (b)  the 
paper  and  wood  pulp  industry.  For  purposes  of  comparison  the  two  distributions  are  so 
placed  on  the  natural  scale  chart  that  the  frequency  curves  show  the  same  arithmetic  means 
and  areas.  The  double  log  chart  is  based  directly  upon  the  natural  scale  chart.  It  was 
necessary  to  break  up  the  "over  $35"  interval  before  calculating  the  arithmetic  means. 


122 


PERSONAL  DISTRIBUTION  OF  INCOME  IN  U.  S. 


CHART  32  E 
FREQUENCY  DISTRIBUTION  OF  RATES  OF  WAGES  PER  WEEK 
FOR  MALES  IN  THE  BOOT  AND  SHOE  INDUSTRY  AND  FOR  MALES 
IN  THE  PAPER  AND  WOOD  PULP  INDUSTRY  IN  MASSACHUSETTS 

IN  isie. 

Source..  Massachusetts  Strvst/cs  or  Mmufactoke-s  J9J8. 

Sc/1i.ES  J-OGff/?/THM/C 


In  conclusion,  the  order  of  importance  of  the  variables  as  affecting  the 
shape  of  the  distribution  curve  seems  to  be — industry,  place,  time. 

We  have  but  little  basis  for  estimating  total  income  from  earnings.  In 
the  preceding  chapter  on  Income  Distributions  from  other  Sources  than 
Income  Tax  Returns  attention  was  drawn  to  the  difficulty  of  arriving  at 
any  reliable  statement  of  relationship  between  earnings  and  income  from 
such  distributions  because  of  the  way  in  which  the  data  were  selected.  It 
is  even  less  possible  to  discover  the  nature  of  any  such  relationship  from  the 
income-tax  material.  Though  there  is  no  such  apparent  " selection"  in 
the  income-tax  data  as  hi  the  case  of  non-tax  income  distributions,  the 
material  is  not  arranged  to  answer  our  particular  question. 

The  non-statistical  reader  examining  Charts  30D,  30E  and  30F,  on  which 
are  plotted  average  total  income  and  average  income  from  wages  in  each 
income  interval,  might  think  that  it  would  be  quite  simple  to  estimate  the 
probable  average  total  income  of  persons  having  any  specified  wage.  How- 
even-  there  is  a  profound  statistical  fallacy  involved  in  the  use  of  this  ma- 
terial for  any  such  purpose.  As  given  in  the  official  tables,  income  is  the 
independent  variable,  wages  the  dependent.  This  condition  cannot  be 
reversed  without  retabulation  of  the  original  returns.  The  statistical 
student  recognizes  the  problem  as  one  involving  the  impossibility  of  de- 
riving one  regression  line  from  the  other  when  neither  the  nature  of  the 


WAGE  DISTRIBUTIONS  423 

equation  representing  the  regression  line  1  nor  the  degree  of  relationship 
(correlation  in  the  broad,  non-linear  sense)  is  known.  Even  if  we  knew 
that  the  average  net  income  of  those  persons  reporting  in  1918  in  the  85,000 
to  $6,000  net  income  class  was  $5,474  and  the  average  wage  obtained  by 
these  persons  was  $2,192,  we  would  be  quite  unwarranted  in  concluding 
that  the  average  income  of  persons  n  reiving  $2,192  per  annum  wages  was 
$5,474.  If  no  wage  earner  received  income  from  any  oilier  source  than 
wages  we  still  would  have  a  condition  where  the  average  income  in  the 
income  class  would  be  greater  than  the  average  wage.  Total  wages  would 
be  necessarily  less  than  total  income,  because  in  the  income  class  are  in- 
cluded not  only  wage  earners  but  capitalists  and  entrepreneurs.  But  both 
total  wages  and  total  income  are  divided  by  the  same  number  to  get  an 
average — namely  total  number  of  persons  in  that  income  class. 

This  suggests  a  technical  criticism  of  the  material  contained  in  the 
Statistics  of  Income.  All  data  concerning  the  relation  between  two  vari- 
ables are  always  there  published  in  such  a  manner  as  to  give  information 
concerning  only  one  of  the  regression  lines  and  no  information  whatever 
concerning  the  "scatter."  If  such  data  were  published  in  the  form  of  "  cor- 
relation tables"  the  increase  in  usefulness  for  statistical  analysis  would 
be  very  great.  Such  "correlation  tables"  keep  closer  to  the  original  data 
than  the  usual  type  of  statistical  tables.  Freer  use  of  them  is  much  to  be 
desired,  particularly  in  cases  where  it  is  difficult  to  anticipate  all  the  prob- 
lems for  whose  solutions  investigators  will  go  to  the  tabulated  materials. 

1  The  difficulty  of  the  problem  is,  if  possible,  increased  in  this  particular  case  because  of 
the  fact  that  the  regression  is  radically  nun-linear. 


CHAPTER  33 

THE  CONSTRUCTION  OF  A  FREQUENCY  CURVE  FOR  ALL 

INCOME  RECIPIENTS 

The  direct  and  only  adequate  method  of  discovering  what  is  the  fre- 
quency distribution  of  income  in  the  United  States  would  be  to  define 
very  carefully  the  terms  income  and  income  recipient  and  then  have  a  care- 
fully planned  census  taken  by  expert  enumerators  upon  the  basis  of  these 
definitions.  The  returns  brought  in  by  the  enumerators  should  moreover 
be  sworn  to  by  the  persons  making  them  and  heavy  penalties  attached  to 
the  making  of  false  or  inaccurate  returns.  A  less  satisfactory  method  but 
one  which  would  probably  give  excellent  results  would  be  to  have  a  large 
number  of  truly  random  samples  taken  by  such  a  census.  The  results  of 
either  procedure  could  then  be  adjusted  in  the  light  of  other  statistical 
information  concerning  the  National  Income  and  also  in  the  light  of  theo- 
retical conclusions  derived  from  the  data  themselves. 

Constructing  an  income  frequency  distribution  for  all  income  recipients 
in  the  United  States  from  the  existing  data,  a  few  of  whose  peculiarities 
have  been  noted  in  the  preceding  chapters,  necessarily  involves  an  ex- 
tremely large  amount  of  pure  guessing.  It  is  only  because  of  the  practical 
value  of  even  the  roughest  kind  of  an  estimate  that  any  statistician  would 
think  of  attacking  the  problem.  The  method  followed  in  the  actual  con- 
struction of  the  income  frequency  distribution  has  been  outlined  in  vol- 
ume I.1  This  method  contains  one  assumption  after  another  that  is  open 
to  question.  Moreover  we  feel  in  many  cases  quite  unable  to  estimate 
the  probable  errors  involved  in  these  assumptions.  Their  only  excuse  is 
their  necessity.  What  is  the  amount  of  under-reporting  for  income  tax 
and  how  is  it  distributed?  What  is  the  effect  upon  the  returns  of  "legal 
evasion?"  To  what  extent  is  the  "bulge"  on  the  income-tax  returns  in  the 
region  under  about  $5,000  in  1918  the  result  of  the  "intensive  drive?" 
What  is  the  relation  between  wages  and  total  income  by  wage  intervals? 
What  is  the  relation  between  wage  rates  and  earnings  in  any  particular 
industry?  Etc.,  etc.  These  are  all  questions  which  must  be  answered  over 
and  over  again  and  yet  they  are  questions  the  answers  to  which  must  be, 
in  many  instances,  almost  pure  guesses.  And,  to  repeat,  the  margin  of 
possible  error  is  often  large. 

In  view  of  the  sparsity  and  inadequacy  of  the  data,  our  first  approach 
to  the  problem  was  an  attempt  to  discover,  if  possible,  some  general  mathe- 
matical law  for  the  distribution  of  income.    Were  we  to  get  any  very  defin- 

1  Income  in  the  United  States,  Vol.  I,  pp.  122-139. 

424 


FREQUENCY  CURVE  FOR  INCOME  RECIPIENTS  425 

ite  and  reliable  clues  as  to  the  mathematical  nature  of  the  frequency  dis- 
tribution of  income  from  small  sample  income  distributions  and  from  wages 
distributions,  etc.,  such  clues  might  of  course  be  invaluable  in  checking 
the  results  obtained  from  piecing  together  existing  wage  distributions, 
income  distributions,  and  other  scattered  information.  We  would  be  in 
the  position  of  the  astronomer  who  is  able  to  "adjust"  the  results  of  his 
observations  in  the  light  of  some  known  mathematical  law.  It  soon  be- 
came clear,  however,  that  it  is  quite  impossible  to  discover  any  essential 
peculiarities  of  the  income  frequency  distribution.  The  available  material 
is  not  only  insufficient  for  purposes  of  such  generalizations,  but  moreover 
the  distribution  from  year  to  year  is  so  dissimilar,  that  any  generalization 
of  this  nature  is  too  vague  to  be  of  any  practical  value. 

The  method  finally  used  for  the  construction  of  the  income  curve  has 
therefore,  we  are  sorry  to  say,  practically  all  the  weaknesses  of  the  data 
from  which  it  has  been  constructed.  The  occupations  of  the  country 
were  tabulated  and  to  each  occupation  was  assigned  those  wage  and  income 
distributions  which  seemed  applicable  with  the  least  strain.  We  had  then 
a  series  of  income  and  wage  distributions  which  nominally  covered  nearly 
all  the  income  recipients  in  the  United  States,  though  for  some  occupations 
the  inadequacy  of  the  wage  and  income  samples  was  little  short  of  absurd. 
The  wage  distributions  were  converted  into  income  distributions  on  the 
assumption  that  the  smaller  the  wage  the  larger  is  its  percentage  of  total 
income.  Beyond  this  simple  assumption  the  particular  functional  relation- 
ships used  for  many  industries  were  almost  pure  guess  work.  Moreover, 
not  only  was  there  the  danger  of  error  in  moving  from  wage  distribution 
to  income  distribution  and  the  danger  of  error  resulting  from  estimating 
a  wage  distribution  for  a  particular  industry  in  a  particular  locality  from 
a  similar  though  not  identical  industry  in  a  different  locality,  but  also  there 
was  the  danger  of  error  resulting  from  estimating  a  wage  distribution  for 
one  year  from  a  wage  distribution  for  another. 

The  final  results  are  probably  not  quite  so  bad  as  they  might  have  been 
had  we  not  had  a  number  of  collateral  estimates  with  which  roughly  to 
check  up  and  otherwise  adjust  the  first  results  of  our  estimates.  For  ex- 
ample, such  independent  information  as  Mr.  King's  estimate  of  the  total 
income  of  the  country  and  Mr.  Knauth's  estimate  of  the  total  amount  of 
income  from  dividends  were  pieces  of  information  with  which  the  results 
of  the  frequency  curve  calculations  were  made  to  agree. 

Some  hypothetical  reasoning  is  inevitable  in  such  a  statistical  study  as 
the  present  one.  The  investigator  must  not  lose  heart.  Sir  Thomas 
Browne  in  his  rolling  periods  sagely  remarks  that  "what  song  the  Syrens 
sang,  or  what  name  Achilles  assumed  when  he  hid  himself  among  women, 
though  puzzling  questions,  are  not  beyond  all  conjecture!'' 


INDEX 


"Actually  at  work,"  178,  272 

differs    from    "attached    to    industry," 
:;:;  :;i 
Actual  savings,  in  corporate  surplus,  329 
Agricultural  implements,  52-54 
Agricultural  laborers 

age  and  sex  percentages,  279 

income  of,  270 

wages  of,  55-59 

winter  earnings  in  other  industries,  290 
Agricultural  products,  total 

gross  value  of,  299-301 

net  value  of,  55 
Agriculture,  40-64 

relative  importance,  02 
American  Contractor,  103 
American  Merchant  Marine 

see  transportation  by  water 
American  Telephone  and  Telegraph  Com- 
pany, 179-190,  335 
Ammain 

average  income  per,  233-234,  342 

defined,  233 

number  of,  234 
Animal  products 

aggregate  value,  49,  60,  303-30! 

variations  in  value,  48 
Animals  on  farms 

see  live  stock  on  farms 
Animals  slaughtered,  42 

value  of,  302-303 
Animals  sold 

value  of,  302-303 
Army,  Navy,  and  Marines,  212-215,  277 

average  annual  income  over  $2,000,  283 

average  annual   income  under  $2, 000, 
284 

number  employed  in,  2S0 
"Attached  to  the  industry" 

meaning  of  term,  34,  17s 

numbers,  39,  272 
Australian   war   census  of  incomes,   348, 
395-400 


Automobile  Chamber  of  Commerce,  Na- 
tional, 52 
Automobile  repairing 

see  hand  trades 
Automobiles  on  farms,  52-54 

Banking,  202-209 

entrepreneurs  normally  occupied  in,  33 

volume  of  business,  average,  209 

see  also  deposits,  bank 
Barrett,  Alfred  M.,  150-152 
Bartlett,  D.  P.,  369 
Bell  Telephone  Companies,  179-190 
Birth  rates,  14-16 
Blacksmithing 

see  hand  trades 
Bond  Buyer,  261 
Bondholders 

see  security  holders 
Bond  interest 

see  security  holders,  share  of,  interest  on 
investments 
Bonds,  conversion,  265 
Bonds,  Liberty,  L2,  219 
Bonds,  Postal  Savings,  265 
Bonds,  U.  S.,  265 
Book  income 

defined,  3 

used  in  first  estimates,  10 
Bowley,  A.  b,  349,  376 
Bresciani,  C,  349 
Bricklayers,  L07 
Building  construction,  value  of 

see  construction  work,  value  of 
Building  contracts,  ll):;   105 
Building  laborers,  107 

wages  of,  index  of,  107 
Building  materials,  prices  of,  107-111 
Building  permits,  103   105 
Building  shortage  estimated.  Ill   1 15 
Building  trades 

see  construction  industrj 
Bureau  of  Farm  Economic-,  306,  308 


427 


428 


INDEX 


Bureau  of  Labor  Statistics 

data  used  in  price  index,  17-24,  43,  113 

index  of  residence  rents,  91 

Union   Scale  of   Wages    and    Hours  of 
Labor,  147,  198 
Bureau  of  Mines,  U.  S. 

data  from,  65-77 
Business  savings 

see  savings,  business 

Cabinet  making 

see  hand  trades 
Car  days 

Pullman,  in  relation  to  employees,  138- 
139 

street,  155 
Car  miles 

Pullman,  140 

street  railway,  155-156 
Carpenters,  107 
Census  of 

Agriculture,  33,  230 

Central  Electric  Light  and  Power  Sta- 
tions, 157 

Electrical  Industries,  33 

Electric  Railways,  149 

Incomes,  395-400 

Manufactures,  33,  83,  109,  273-274 

Mines  and  Quarries,  73,  74,  273 

Occupations,  32-33,  210,  271,  273 

Religious  Bodies,  275 

Telephones,  59,  180,  183 

Transportation  by  Water,  196,  198-200 

Wealth,    Debt   and    Taxation,    211-217, 
219,  230 
Changes  in  income  tax  law 

see  income  tax  law,  changes  in 
Chapin,  R.  C,  292,  379,  415 
City  and  village  government,  210-217 
Civil  service,  210-217 
Clerical  occupations 

average  annual  incomes  under  $2,000, 
285,  288 

average  wages,  277 

number  engaged  in,  276,  277,  283,  284 
age  and  sex  percentages,  280 
Clock  repairing 

see  hand  trades 
Coal  industry 

see  mines,  quarries  and  oil  wells 
Commercial  failures,  325 


Commissioner  of  Education,  U.  S. 

annual  reports  of,  212 
Commissions  to  Express  employees,  143- 

144 
Common  carriers 

see  Pullman  cars,  steam  railways,  street 
railways,  transportation,  transporta- 
tion by  water 
Comptroller  of  the  Currency 

annual  reports,  data  from,  202-209 
Consols  of  1930,  U.  S.,  265 
Construction  costs,  index  of,  69,  335-336 
electric  light  and  power,  164 
manufacturing,  96 
street  railways,  154 
Construction  industry,  103-115 

indices     of     profits,     wages,     material 
prices,  108 
Construction    work,    value   of   in   U.    S., 

104-106,  109-111,  114-115 
Consumption  goods 

comparison  of  price  indices,  31 
index  of  prices  of, 
for  well-to-do,  24-30 
for  workers,  17-24 
interest  on  value  of,  229-232 
value  of,  in  agriculture,  302-304 
Contract  work  in  manufacturing,  86,  89 
Corporate  earnings 
all  corporations,  324 

having  net  incomes,  324 
compared  for  decade,  326 
electric  light  and  power,  159-160 
manufacturing,  85 

proportion  to  dividend  and  surplus,  327 
railways,  127 

transportation  by  water,  192-194 
Corporate  savings 

see  business  savings 
Corporate  securities,  total,  held  by  banks, 

203 
Corporate  surplus 

see    surplus,    corporate,    also    savings, 
business 
Corporations,  number  of 

reporting  no  income  or  deficit,  325 
reporting  taxable  income,  326 
Cost  of  living 

see   cost    of    consumption    goods,    also 
price  indices,  etc. 
County  governments,  213-216 


INDEX 


42'J 


Cow-keeping,  230-232 

Cows  on  farms,  43-44 

Crops 

fed  and  not  fed  to  live  stock,  50-51 
value  of,  54-55,  60,  301-305 

Curves,  fitting 

abuse  of  power  series  in,  375 
to  cumulative  data  dangerous,  363 
to  different  functions  of  the  variable, 
effect  of,  347 

Dairy  products,  42-44 

Day,  Edmund  E.,  75-77,  300 

Death  rates,  14-17 

Debts,  public,  interest  on,  216,  219 

Deficits,  corporate,  324 

amount  of,  325 
Deposits,     bank,    average      volume     of, 
209 

compared  with  population,  207-208 

share  of  net  value  product,  206-207 
Depreciation 

manufacturing,  84-86 

railways,  119 
Dewey,  Davis  R.,  372,  378,  420 
Direct  goods 

see  consumption  goods 
Disbursements 

by  Government  to  employees,  214 

net,  how  ascertained,  3 

net  vs.  gross,  3 
Disbursements,  net,  to  entrepreneurs  and 
other  property  owners 

construction,  108 

electric  light  and  power,  163 

express,  141-143 

government,  217,  219 

manufacturing,  92-94,  96 

mining,  etc.,  66-70 

Pullman  transportation,  136 

railways,  125,  127 

street  railways,  148,  151-152,  155 

telegraphs,  168-169,  171-174 

telephones,  181-183 

transportation,  116 

transportation  by  water,  195,  196 
Disbursements,    total,    to    entrepreneurs, 

238-239 
Discounts,  bank,  203 
Distribution  of  income 

see  frequency  distributions 


Dividends 

banking,  202-205 

corporate,  324,  328 
total,  382 

electric  light  and  power,  164-165 

manufacturing,  95-96 

mining,  etc.,  67-69 

net  vs.  gross 
banking,  202 
express,  142 

Pullman  transportation,  134 
telegraphs,  170-172 

Pullman  transportation,  133-135 

share  of,  in  earnings,  327 

street  railways,  151-154 

telegraphs,  168-173 

telephones,  179-182 

total,  328 

transportation  by  water,  193-194 
Dodge,  F.  \\\,  Company,  103-105 
Domestic  animals,  42 
Dressmaking,  custom 

see  hand  trades 
Drury,  H.  B.,  Murine  and  Dock  Labor,  197 
Dan's  Renew,  325 
Dyeing  and  Cleaning 

see  hand  trades 

Earnings 

average  annual 

how  computed,  33-35 
of  persons  receiving  under  §2,000,  285 
vs.  rates  of  pay,  271 
vs.  wage  rates,  12 
average  "full  time,"  34-3S 
of  farm  laborers,  2S9-290 
see  also  employees,  share  of 
Earnings,  corporate 

see  corporate  earnings 
Earnings,  gross 

of    transportation    by    water   concerns, 

estimated,  193 
of  farms  and  farm  families,  302 
Earnings,  net  of 

all  corporations,  324,  327,  328 

having  net  incomes,  32  I 
farmers,  302 

manufacturing  corporations,  93,  96 
proportion  of  dividend  and  surplus.  327 
Earnings,  personal,  269 

and  total  income,  382-392,  4U6-414 


430 


INDEX 


Earnings,  personal,  (cont.) 
how  estimated,  271-279 
income  from,  270 
of  individuals  in  a  family,  416 
see     wages,     frequency     distributions, 
heterogeneity  of  income  data 
Edgeworth,  F.  Y.,  349,  375 
Edison  Company,  The  New  York,  data 

used  for  price  index,  20 
Efficiency  of  employees 
see  physical  products 
Eggs  and  poultry,  45-46 
Electric     light     and     power     companies, 

private,  157-167 
Electric  railways 

see  street  and  electric  railways 
Emery:  Arthur  T.,  379,  415,  417 
Employed  persons,  gainfully,  in  TJ.  S. 
see  persons  gainfully  employed 
also  employees,  and  occupational  dis- 
tribution 
Employees,  average  annual  earnings  of 
agriculture,  57-58 
banking,  206 
construction,  114 
electric  light  and  power,  166 
express  companies,  147 
government,  214-215 
manufactures,  91 
mines,  etc.,  74-76 

Pullman  car  transportation,  137-138 
steam  railways,  131 
street  and  electric  railways,  152-153 
telegraph  companies,  169 
telephone  companies,  185-186 
transportation,  118 
transportation  by  water,  196-197,  199- 

200 
unclassified  industries,  224 
see  also  employees,  share  of 
Employees 

"actually  at   work"  differs  from   "at- 
tached to  industry,"  33-34 
"attached    to    industry,"    meaning    of 
term,  33-34 
numbers,  38 
damages    paid    to,    by    railways,    125- 

126 
occupational  distribution  of,  32-39,  280 
output  per  capita,  see  physical  product, 
125-126 


Employees,  number  of 
agriculture,  57 
banking,  205-206 
construction,  114 
electric  light  and  power,  166 
express  companies,  146-147 
government,  210-212 
hand  trades,  102 
manufactures,  90-91 
mines,  quarries  and  oil  wells,  73-74 
percentage  by  ages,   sexes,    industries, 

279 
Pullman  cars,  138-139 
steam  railways,  128-131 
street  railways,  153 
telegraphs,  175,  177 
telephones,  184-186 
transportation,  118 
transportation  by  water,  196-198 
unclassified,  224 
Employees,  share  of 

agriculture,  55-56,  289-290 
all  industries,  243 
banking,  205-207 
construction,  105-109,  113 
electric  light  and  power,  158,  161,  165- 
166,  242 

estimated,  161 
express  companies,  144-147 
Government    (all    branches),    212-217, 

220 
hand  trades,  100,  102 
manufactures,  87-90,  98 
mining,  etc.,  70-75 
Pullman  cars,  136-138 
railways,  125,  127,  128,  131 
street  railways,  151,  153-154 
telegraphs,  169,  175 
telephones,  183-186 
transportation,  117 
transportation  by  water,  195-200 
unclassified  industries,  223-224,  232 
Entrepreneurs 
how  defined,  32 
industrial  distribution  of,  33 
Entrepreneurs  and  other  property  owners 
disbursements  to 

see  disbursements 
purchasing  power  of  share  of,  in 

agriculture,  59-61,  63 

banking,  205 


INDEX 


431 


Entrepreneurs,  etc.  (cont.) 

purchasing  power  of  share  of,  in  (cont.) 

construction,  111-112 

electric  light  and  power,  164 

express,  143 

manufacturing,  97 

mining,  etc,  70 

Pullman  cars,  135 

railways,  132 

street  railways,  153-154 

telegraphs,  174 

telephone-,  [V2 

transportation,  116 

transportation       by      water,        194- 
195 

unclassified  industries,  227 
Entrepreneurs    share    in    the    net    value 

product  of 
agriculture,  59 
all  industries,  240-211 
banking,  204  205 
construction,  107-112 
electric  light  and  power,  165 
express,  142-143 
manufacturing,  91  98 
mining,  etc.,  65-70 

saved  as  surplus,  68 
Pullman  transportation,  134 
railways,  123,  127 
street  railways,  150-151 

saved  as  surplus,  152 
telegraphs,  17:;  171 
telephones,  179  ISO 
transportation,  116 
transportation  by  water,  193-195 
unclassified  indust ties,  227)  22X 
Errors  in  computations,  minor,  7 
Errors  of  estimates,  7-10,  2:50,  251,  255, 

273 
probable  error,  '.'>'■'>()  .;.;_' 

Estimates  of  income 
from  industrial  products,  I 

how  made,  3 

made  from  corporation  reports,  4 

plan  of  presenting,  10 
Excess  profits  tax,  320 
Excise  taxes,  corporate,  324 
Expenses  of  farmers 

relative  increase,  307 

total,  302  303 
Express  companies,  111    117 


Factory  production 

see  manufacturing  industry 
Failures,  commercial,  325 
"Failure  to  report"  incomes,  254-260 
Farm  emploj 

see  agricultural  laborers 
Farm  labori 

see  agricultural  laborers 
Farmers 

distributed  by  income,  308-309 

expenditures  of,  302-307 

families,  :>,:>,! 

not    "gainfully    employed,"    32,    289 

income  of,  2'.)N  :;i:; 
percentages,  333-335 
receiving  over  $2,000,  253,  313 
receiving  under  $2,000,  270,  313 
total,  307,  311-312 

income  tax,  299 

"labor  income"  of,  308-310 

number  of,  income  over  82,000,  253 

return-  to,  02-64 

tenant,  305 
Farm  property 

rental  value  of,  309  310 

value  of,  ol   7.7,,  2'.  18-299 
Farm  loans,  federal 

interesl  on,  261 

outstanding,  total,  264  265 
Farm  products 

set  agricultural  products 
Farms,  number  of,  300 
Federal  Bureaus 

set  bureaus 
Federal  Government,  210  222 

federal  Reserve  Hoard 

study  of  employees'  income  apportion- 
ment, 25 
federal  securities  held  by  banks,  218 

Pert  ilizer,  7)2,  54 
Finance 

proportion  of  dividends  and  surplus,  .127 
Financial  Statistics  of  Cities,  21-".,  217),  217, 

219,  291 
Financial  Statistics  of  States,  211.  212.  219, 

291 
hue  depart  nuiit 

see  police  ami  fire  departments 
Flux,  A.  W.,  348 
Food  and  kindred  products,  80  82 

see  also  agriculture 


432 


INDEX 


Freight  carried  by  railways,  128-130 
Frequency  curves 
describing  distribution  of  income  by,  343 
normal  curve  of  error 

fitted  to  heights  of  men,  347 
not   applicable   to   income   distribu- 
tions, 346-348 
rejected  by  Pareto,  346 
Pearson's  system  of,  348,  375 
y  =  bxm,  368-369,  see  Pareto's  Law 
see  hyperbola 
Frequency  distributions 
of  heights  of  men,  347 
of  income,  339-425 
among  families,  341 
among  individuals,  341,  416 
among    wage-earners,    tail-slope    of, 

379-380 
by  sources,  385-392 
equations  of  straight  lines  fitted  to, 

367 
factorial,  341 

heterogeneity  of  data,  376-393 
in  U.  S.,  350-362,  365-368,  382-392, 
400,  404^14,  424^25 
tax  returns  1914,  351,  357;  1915, 
352,  358;  1916,  353,  359;  1917, 
354,  360;  1918,  355,  361;  1919, 
356,   362;   1915  and  1918  com- 
pared, 365-367;  $5,000-line,  403- 
404 
in  Oldenburg,  363-364 
mathematically  describing,  343 
meaning  of  similarity  in,  375 
not    describable    by    normal    curve, 

346-348 
per  ammain,  341 
of  wages,  369-374,  378,  416-423 
and  incomes,  380-392,  405-414 
peculiarities  of,  418-423 
per  hour,  370-374 
rates  and  earnings  in  same  industry, 

419 
rates  in  different  industries,  421-422 
similar  tail-slopes  of  dissimilar,  371- 

374 
tail-slopes  of  various,  378 
tail-slope  not  an  index  of  scatter,  373 
see  hyperbola,  Pareto's  Law 
Friday,  David,  316,  321,  326,  328 
Funk,  W.  C,  301 


Gainfully  employed  persons  in  U.  S. 

age  and  sex  of,  279 

see    also    persons    gainfully    employed, 
employees,     and     occupational     dis- 
tribution 
Gardens,  50-51 
Gini,  C.,  349 
Goldenweiser,     E.     A.,     300,     302,    303, 

304 
Government  in  U.  S. 

data  concerning  all  branches  of,  210-222 

income  from 

principles  determining,  4-5 

number  of  employees  of,  212 
Government  service  to  business 

impossible  to  measure,  5 
Government  services, 

direct;  indirect,  5 
Grist  mills,  custom 

see  hand  trades 
Gross  earnings 

see  earnings,  gross 
Gross  income 

see  earnings,  gross 

also  income,  gross 
Gross  value  of  products  in 

agriculture,  299-301 

manufacturing,  78-84 
Gross  wealth 

see  wealth,  gross 

Hand  trades,  99-102 
Harness  and  saddles,  52-54 
Hart,  Hornell  N. 

Fluctuation  in  Unemployment  in  Cities 
of  the  United  States,  36 
Heterogeneity   of   income   data,   376-393 

see  frequency  distributions 
Hod  carriers,  107 
Homes  owned,  291,  294 

income  from  270 

rental  value  of,  228-229 

tax  exempt,  261,  267-268 
Honey,  value  of,  49 
Horses,  value  of,  48,  53 
House  rents 

index  of,  294 

value  of,  302 
Housewives 

value  of  services  excluded,  249 
Hoyt,  Homer,  104 


INDEX 


433 


Hyperbola 

fitted  to  earnings  per  hour,  370-371 
logarithmic   frequency   curves  describ- 
ableby,  3G9 

Immigration 

annual  statistics  of,  14-16 
Income 

amount   subject  to   taxation,    259-260 

book,  3 

defined,  3,  341 

failure  to  report,  254-260 

from  Government,  how  computed,  5-6 

how  estimated,  3,  250-252 

interest  on  loans  not  deducted,  12 

miscellaneous,  223-232 

monetary  vs.  non-monetary,  341 

non-monetary,  298 

per  ammain,  233-234,  342 

psychic,  defined,  3 

reported  for  tax,  253 

spurious,  due  to  changing  prices,  249- 
250 

total  bank  vs.  bank  loans,  209 

understatement  of,  254-260 
Income  average 

annual,  per  capita,  337 

from  wages  and  salaries,  408-414 

per  ammain,  233-23 1 

persons  receiving  over  $2,000,  258 

persons  receiving  under  $2,000,  285-288 
Income,  corporate 

total  reported,  324 
Income,  farmers,  298-313 

based  on  average  ratio  of  expenses  to 
total  product,  305-308 

based  on  sample  incomes,  308-310 

based    on    total    production    and    ex- 
penses, 300-305 

final  estimates,  310-313 

over  $2,000,  313 

percentage  of  total  average  incomes,  381 

total,  382 

under  $2,000,  313 
Income,  gross 

electric  light  and  power,  158 

express  companies,  143 

farmers,  303,  307,  311-323 

manufacturing,  85 

of  persons  receiving  over  $2,000,  253, 


Income,  gross  (cont.) 

of  persons  receiving  under  $2,000,  270 
related  to  personal  earnings,   295-296, 

382 
street  railways,  149-150 
transportation  by  water,  192-193 
Income,  National 

distribution  of  expenditures,  336 
percentage  of,  received  by  persons 

comprising  the  highest  five  per  cent, 
333-:;:;  1 

farmers,  333,  335 

receiving  over  82,000,  332-333 

receiving  under  $2,000,  332-333 

purchasing  power  of,  333,  335,  337 

range  of,  330,  332 

total,  331 
Income,  net 

all  corporations,  324 

all  farmers,  303,  307 

industrial,  4 

personal  by  sources,  3S2-392 

salaries  vs.  business,  257 

surplus  included  in  percentage  going  for 

shelter,  292 
Income,  personal 
defined,  341-343 
from  pensions,  270 
negative,  347-348 
returns  by  sources,  3S2-392 
Income,  personal  distribution  of,  339-425 
see   frequency    distributions,    heteroge- 
neity of  income  data,  Pareto's  Law 
Income,   personal,   over  82,000,    25:;  26S 

331 
average,  258 
from  business,  257 
from  salaries,  257 
price  index  for,  330 
total,  331 
Income,     personal,    under     $2,000,    269- 

297 
from  investments,  201   297 
occupations  and  industries,  271-286 
personal  earnings,  269-290 

related  to  total  income,  295 
price  index  for,  336 
total,  270-331 
Income  receivers,  classes  of,  25:; 
defined,  342 
frequency  curve  for,  424-125 


434 


INDEX 


Income  tax 
corporate,  324 
data  used  to  estimate  income,  253-257, 

295 
law,  administration  of,  254 

changes     in,     affecting     comparison, 
254-320 
Income,  tax  exempt  from,  260-268 
Federal  farm  loans,  261,  264-265 
Government  bonds,  261,  265 
Liberty  bonds,  261,  263-264 
obligations  of  possessions  of  U.  S.,  261 
rental  of  owned  houses,  261,  267-268 
state  and  local  debts,  261-262 
through  nature  of  occupation,  261,  266- 
267 
Income  tax  returns 

accuracy  of  reporting,  402-414,  424-425 
and    frequency    distribution,    351-362, 
365-368  " 
comparison  for  years  1915  and  1918, 
365-369 
farmers,  299 

for  different  classes,  383-392 
importance   in  estimating  income  dis- 
tribution, 401-414 
number  of,  385 

on  uniform  exemption  limit,  256 
technique  of,  401-403 
Index  of  gross  output  in  manufacturing, 

80-83 
Index  of  prices 

business  savings,  11 
construction,  334,  336 
consumption  goods 

used  by  well-to-do,  24-31, 333,  334,336 
used  by  workers,  17-24,  31,  333,  334, 
336 
farm  products  on  farm,  307 
farm  products  at  market,  307 
house  rents,  294 
placed  on  1913  basis,  11 
war  expenditures,  334,  336 
Index  of  wages,  279 

Industrial    Conference    Board,    National, 
293 
indices  of  prices,  20-23 
Industrial  distribution 

of  gainfully  employed   persons,    31-39 
of  persons  receiving  under  $2,000,  271- 
286 


Influenza 

effect  on  population,  16-17 
Information 

additional,  available,  10 
Ingalls,  W.  R.,  68,  310,  321 
Insurance,  cost  to  farmers,  53-54 
Inter-business  payments,  elimination  of,  4 
Interest 

fraction  of  total  income  received  from, 

386-392 
on  investments  in 

agriculture,  52-54,  302 
electric  light  and  power,  162-164 
express  companies,  141-142 
manufactures,  85,  93,  96-97 
mining,  etc.,  66-67 
railways,  123 

street  railways,  150,  151-154 
telegraphs,  170-172 
telephones,  1S0-182 
transportation  by  water,  193-195 
unclassified  industries,  229-231 
on  local  debt,  261-262 
paid  by  Government,  216-219 
payments  on  consumption  loans 
not  deducted  from  income,  12 
tax  exempt,  261 
Investments,  income  from,  270 

of  persons  receiving  less  than  $2,000, 
294-297 
Iron  and  Steel,  80 

Jewelry 

see  hand  trades 

Kansas  Bureau  of  Mines,  71 

Kapteyn,  J.  C.,  349 

Kilowatt  hours  produced  by  electric  light 

and  power  companies,  167 
Knibbs,  G.  H.,  395 

"Labor  income"  of  farmers 


average. 


310 


defined,  30S 

estimated,  309 
Laidler,  H.  W.,  74 
Laundries 

accuracy  of  data  on,  99 

see  also  hand  trades 
Leather  and  its  products,  81 
Liabilities  of  failures,  total,  325 


INDEX 


435 


Liberty  loans 

see  loans,  Liberty 
Lincoln,  Professor  Edmond  E.,  158 
Lipka,  J.,  369 
Liquors  and  beverages,  81 
Live  stock  on  farms,  47^9 

value  of,  302 
Loans,  bank 

average  volume  of,  209 

compared  with  population,  207-209 

made  to  farmers,  53-54 

purchasing  power  of,  208-209 
Loans,  consumption 

interest  payments  on,  12 
Loans,  Federal  farm 

see  farm  loans,  Federal 
Loans,  Liberty 

effect    on    Government     interest    pay- 
ments, 219 

income  computed  from,  12 

interest  on,  261,  264 

value  of,  263 
Loans  of  1925,  U.  S.,  265 
Loans,  Panama  Canal,  265 
Local  debt 

interest  on,  261,  262 
Lock  repairing 

hand  trades 
Lumber,  80 

Mackay  telegraph  companies,   the,    168- 
178 

Manufacturing  Industry,  78-98 
approximate  total  business  savings  in, 

236-237 
gross    value    of    output     vs.    net    value 

product,  78-84 
importance  of  industry,  78 
number  engaged  in,  273-274,  280,  283, 
284 
age  and  sex  percentages,  279 
average  annual  incomes  under  $2,000, 
285,  288 
proportion  of  dividend  and  surplus,  327 
-"iirces  of  information,  78-  s-! 
statistics  of 

Massachusetts,  36-37,  80-82,  87-88 
Pennsylvania,  71,  87-88,  106 
March,  Lucien,  349 
Marines 

sec  Army,  Navy  and  Marines 


Massachusetts 
Statistics  of  Manufactures,  36-37,  SO  82 
87-88 
Meat  supply  of  U.  S.,  42 

Merchant  Marine,  American 

see  transportation  by  water 
Metals  other  than  iron,  s_' 

see  also  mines,  quarries,  and  oil  wells 
Michigan  Department  of  Labor,  71 

Milk  supply,  13-44 

Millinery 

see  hand  trades 
Mines,  quarries,  and  oil  wells,  65-77 
Mining 

entrepreneurs  normally  occupied  in,  33 
number  engaged  in,  273,  280,  283,  284 
age  and  sex  percentages,  27(.» 
average  annual  incomes  under  $2,000, 
285,  288 
sources  of  information,  65 
Moore,  Henry  L.,  349,  420 
Morman,  James  B.,  305 
Mortgages  on  farms,  305 
Municipal  utilities,  211-218 

National  income 

.sec  income,  ual  ional 
Navy 

see  Army,  Navy  and  Marines 
Need  unit  of  income,  342 
Net  earnings 

see  earnings,  net 
Net  value  product 

see  value  product,  net 
New  York  Journal  of  Commerce,  327 
X.  V.  State  <  'ivil  Service  <  Jommission,  212 
Non-monetary  income,  298 

( >cean  cables 

see  telegraphs 
( Occupational  distribution  of 

employees,  32-39 

entrepreneurs,  33 

persons  receiving  under  82,000,  J7I   286 
Oil  wells 

see  mines,  quarries  and  oil  wells 
Output 

see  physical  product 

Painters,  107 

Panama  Canal  loan-,  I     S  , 
see  loans,  Panama  Canal 


436 


INDEX 


Paper  and  printing,  81 
Pareto,  Vilfredo,  344 
non-mathematical  conception  of  chance, 

348 
rejects  negative  incomes,  346 
rejects  normal  curve,  346 
Pareto's  Law,  344-394 
any  general  income  "law"  questionable, 

374-392 
conclusions  concerning,  393-394 
described,  344-345 
impossibility  of  extrapolating,  345 
lower  income  ranges  and,  368-374 
modern    substitute    for    Wages    Fund 

Doctrine,  345 
non-rectilinear  forms  of,  348 
straight  line  hypothesis,  349-363 
uniformity  of  slope  thesis,  363-368 
zero  mode  with  infinite  ordinate,  345 
see   frequency    distributions,    heteroge- 
neity   of    income    data,    hyperbola, 
income,  personal  distribution  of 
Passenger  traffic  on  railways,  128-130 
Paving  materials,  82 
Pearson,  Karl,  348,  349,  369 
Pennsylvania     Department    of    Internal 
Affairs,  71,106 
statistics  of  manufactures,  87,  88 
Pensions,  amount  of 
express  companies,  144 
Government,  216-217,  220,  291 
manufactures,  90 

persons  with  incomes  under  $2,000,  291 
railways,  126 
telephones,  184 
Pensions,  income  from,  270 
Personal  service 

average  annual  incomes  under  ,$2,000, 
285 
total  earnings  under  $2,000,  288 
average  wages  of,  279 
number  engaged  in,  276,  280,  283,  284 
age  and  sex  percentages,  279 
Persons  gainfully  employed  in  U.  S. 
families  of  farmers  excluded,  32 
industrial  distribution  of,  32-39 
numbers  of,  how  computed,  32 
see  also  employees 
Persons,  number  of 
having  incomes 
over  $3,000,  258 


Persons,  number  of  (cont.) 

having  incomes  (cont.) 
over  $2,000,  253,  260,  331 
by  occupations,  283 
under  $2,000,  270,  331 

reporting  incomes,  256 
Persons,  percentage  of 

having  incomes  over  $2,000,  332-333 

having  incomes  under  $2,000,  332-333 
Persons,  Warren  M.,  350 
Per  capita 

see  population  of  U.  S. 
Physical  products 

agriculture,   output  per  person,   56-61 
indices  of,  301 

banking,  loans  per  person,  207-209 

construction  per  capita  of  population 
115 

electric  light  and  power  kilowatt  houra^ 
167 

Government,  share  of,  53,  222-223 

measured  in  money,  317-320 

mines,  quarries,  oil  wells,  per  employee, 
75-77 

Pullman  car-days,  139-140 

railways,  passenger  miles,  128-130 

relation  to  corporate  surplus,  316-320 

street  railways,  revenue  car  miles,  155- 
156 

telephones,  average,  per  employee,  186- 
188 

tonnage  of  American  Merchant  Marine, 
198,"  201 

transportation  by  water  tonnage,    196 
Plasterers,  107 
Plumbers  and  gasfitters,  107 
Police  and  fire  departments,  211-218 
Population,  U.  S. 

average  per  capita  income,  337 

distributed  by  residence,  229 

effect  of  influenza  on,  16-17 

method  of  estimating,  14-16 
Population,  U.  S.  ompared  with 

agricultural  ouput,  61 

banking  facilities,  208-209 

construction,  115 

electric  power  service,  growth  of,  167 

mineral  output,  75-77 

Pullman  service,  growth  of,  139-140 

railway  service,  growth  of,  130-131 

street  railways,  growth  of,  156 


INDEX 


437 


Population,  U.  S.,  compared  with  (cont.) 
telephone  service,  growth  of,    189-190 
tonnage  of  American  Merchant  Marine, 
201 
Postal  service,  U.  S.,  211-218 
Poultry 
and  eggs,  45-46 
raisin-.  230  231 
Power  companies,  private 
see  electric  light  and  power  companies, 
private 
Price  indices 
for  business  savings,  12 
of  consumption  goods 

used  by  well-to-do,  21-31 
used  by  workers,  17-24 
placed  on  1913  basis,  11 
see  also  index  of  prii 
Price  variations,  how  eliminated,  10-12 
Printing,  paper  and,  SI 
Produce 

see  agricultural  products 
Professional  services 
number  engaged  in,  275,  280,  283-284 
age  and  sex  percentages,  27',) 
average  annual  incomes  under  $2,000, 
285,  288 
Profits 
see  dividends 

also  entrepreneurs,  share  of 
Profits,  undivided 
see  surplus 

also  savings,  business 
Property  owners 

see  entrepreneurs  and  properly  owners 
Psychic  income,  defined,  3 
Public  servii 
number  engaged  in,  27.".,  280,  2s:j-284 
age  and  sex  percentages,  279 
average  annual  incomes  under  $2,000, 
285,  288 
Public  utilities 

proportion   of   dividends    and   surplus, 
327 
Pullman  car  transportation,  133-1 10 
Pullman  porters,  tips  paid  to,  135-136 
Purchasing  power 
comparison  of  price  indices 
for  different  classes,  31 
for  workers,  22-23 
how  computed,  10-12 


Purchasing  power  (cont.) 
index  number  for 

well-to-do,  2s  29 

workers,  17-21 
interest  on  savings  deposit 
net  value  product  of 

all  industries,  245 

Government,  221  -222 

of  hank  loan-  and  deposits,  208   209 

of  income,  :;:;;;,  :;;;.",.  ;;.;7 
Purchasing  power  of  business  savings 

banking,  205 

by  industries,  237 

electric  light  and  power,  ltll 

manufacturing,  07 

mining  etc.,  69 

Pullman  transportation,  L35 

railways,  132 

street  railways,  153-154 

telegraphs,  173-174 

telephones,  1\2 

transportation  by  water,  195 
Purchasing  power  of  employees'  share 

agriculture,  58 

banking,  206 

construction,  1 1  I 

electric  light  and  power,  L66 

express,  144 

Government  service,  215,  220 

hand  trades,  102 

manufacturing,  91 

mining,  etc.,  70 

Pullman  transportation,  137-138 

railways,  131 

street  railway  s,  L53 

telegraphs,  L78 

telephones,  L86 

transpoit.ii  ion,  1  18 

transportation  by  water,  200 

unclassified  industries,  224 
Purchasing  power  of  property's  share 

agriculture,  59 

banking,  205  206 
by  industries,  239,  241 

construction,  1 12 

electric  light  and  power,  164 

express,  1 13 

government,  220 

manufacturing,  97 

mining,  etc.,  70 

national  income,  337 


438 


INDEX 


Purchasing  power,  etc.  (cont.) 
Pullman  transportation,  135 
railways,  132 
street  railways,  153-154 
telegraphs,  174 
telephones,  183 
transportation,  116 
transportation  by  water,  195 
unclassified  industries,  227 

Quarries 

see  mines,  quarries,  and  oil  wells 

Railways,  steam,  and  switching  and  ter- 
minal companies,  119-132 

additions  to  physical  property  of,  122 
lied  Cross,  contributions  by  banks,  202, 

207 
Rediscounts,  bank,  203 
Relief  for  employees 

see  pensions 
Rent,  292-293 

fraction  of  total  income  received  from, 
386-392 
Rental  value  of  farms,  309-310 
Rental  value  of  owned  homes,  228,  229, 
291-294 

tax  exempt,  261,  267-268 
Rents,  contract,  in  U.  S.,  225-227 
Rents,  index  number  for,  294 
Rents  and  royalties  from 

express  companies,  141-142 

manufacturing,  85,  86,  91,  92,  97 

mines,  etc.,  66,  70,  75 

street  railways,  150-152,  154 

telegraphs,  169,  172,  173 

telephones,  180-182 

unclassified  industries,  225-229,  231-232 
Reserves,  corporate,  314-316,  320,  321 

see  also  surplus,  corporate 
Rorty,  M.  C,  28,  112,  182,  206,  228,  272 
Royalties 

see  rents  and  royalties 

Salaries 

see  employees,  share  of,  also  wages  and 
salaries 
Salaries,    government,    state,     city    and 

county  officials,  266-267 
Savings,     actual    in     corporate     surplus, 
329 


Savings,  business 

all  industries,  246 

by  industries,  234-237 

included  in  income,  3 

index  of  values  for 
banking,  204 

electric  light  and  power,  103-165 
express,  143 
manufacturing,  95-93 
mining,  etc.,  69 

Pullman  transportation,  134-135 

railways,  122-124,  127,  132 

street  railways,  150-152,  154 

telegraphs,  173,  174,  176,  179 

telephones,  180-182 

transportation  by  water,  194,  195 

transportation,  115 
Savorgnan,  F.,  349 
Saw  mills,  custom 

see  hand  trades 
School  districts,  211-218 
Scoville,  G.  P.,  305-306 
Sears,  Roebuck  &  Co. 

data  used  in  price  index,  18-19 
Securities,  corporate,  total 

held  by  banks,  203 
Security  holders,  share  of 

banks,  203-204,  206-207 

electric  light  and  power  company,  163- 
164 

express  companies,  141-142 

Government  securities,  218-219 

manufacturing,  90-97 

Pullman  transportation,  134-137 

railways,  123,  127,  132 

street  railways,  148-149 

telegraph  companies,  170 

what  it  includes,  4 
Security  holders,  disbursements  to 

from  telegraph  companies,  168 

see  also  entrepreneurs  and  other  prop- 
erty owners 
Seed  used  by  farmers,  50-51 
Sewing  machine  repairing 

see  hand  trades 
Shelter 

per  cent  of  income  paid  for,  292-2'J'J 
Shipbuilding 

excluded  from  construction,  103 
Shoe  repairing 

see  hand  trades 


INDEX 


439 


Silver,  Gray,  337 
Similarity  of  distribution 

what  constitutes,  375 
Sinking  funds,  railway,  122 
Slichter,  C.  S.,  369 
Slope  of  logarithmic  income  curves,  371- 

392 
South  Carolina 

statistics  of  manufactures,  87,  88 
Spillman,  YV.  J.,  301 
Standardization  of  purchasing  power 

how  obtained,  10 

in  terms  of  1913  prices,  10 
accuracy  checked,  10 
State  and  county  government,  210-21.") 
Steam  fitters,  107 
Steam  railways 

see  railways 
Steel,  iron  and,  88 
Sterrett,  J.  E.,  255,  276,  315,  321 
Stewart,  W.  W.,  300 
Stock  dividends,  320 
Stockholders 

average  income  of,  26 

see  also  security  holders,  entrepreneurs 
Stone  cutters,  107 
Stone  masons,  107 

Street  and  electric  railways,  148-156 
Structural  iron  workers,  107 
Summary  of  Part  I,  233-246 
Summary  of  Part  II,  :«0-339 
Surplus,  banking,  202-204 
Surplus,  corporate,  314-329 

banking,  202-204 

definition  of,  314 

general  accuracy  substantiated,  6,  84-86 

genuineness  of,  315-320 

included  in  net  income,  3,  314 

proportion  of,  in  earnings,  327 

reports  by  corporations  accepted,  li 

total    estimated,   324,    328,    329,    331, 

382 
see  also  savings,  business 
Switching  companies,  119 

see  also  railways 
Sydenstricker,  E.,  342 

Tailoring,  custom 

see  hand  trades 
Tax-exempt  income 

see  income,  tax  exempt 


Taxes 

relation  to  national  income,  •"> 

charged  against  industry,  5,  6 

see  also  income  tax,  etc. 
Taxidermy 

see  hand  trades 
Tax,  income 

see  income  tax 
Teachers,  income  of,  296 

Telegraphs,  168  i7s 

Telephone-,    17!)    I '.Ml 

messages  and  message  miles,  190 
revenue:  business  vs.  residence,  189 
Terminal  companies,  1  19 

set  also  railways 
Textiles,  80 

Tips  to  Pullman  employees,  135-136 
Tobacco  manufactures,  82 
Tonnage,     American     merchant     marine, 

198,  201 
Topics  covered,  10 
Trade 
number  engaged  in.  274,  275,  280,  283, 
284 

age  and  sex  percentages,  279 
average   annual    income    under   $2,000, 
285,  2S8 
Transportation,  1 16-1 18 

see  also  steam  railways;  switching  and 
terminal  companies;  street   and  elec- 
tric   railways;    private    electric    lighl 
and  power  companies;  transportation 
by  wat ei- 
Transportation  by  water,  191-201 
mode  of  estimating  gross  earnings,  L92 
L93 
Typewriter  repairing 
.sec  hand  trades 

Unclassified  industries,  223  232 
Uncollectible  revenues,  in 

express  companies,  ill   1 1"> 

railways,  126 

telephone-.    ls;l 

Understatement  of  income-.  254  260 

increase  since  armistice,  254  '-'■">•"> 
Undivided  profits 

sec  surplus,  business  -ivm 
Unemployment,  271 

estimated  for  I      S     36      3 

in  Massachusetts  factories,  36-38 


440 


INDEX 


United  States  Bureau  of  Mines 

data  from,  (55-77 
United    States    Bureau   of    Labor    Statis- 
tics 
see  Bureau  of  Labor  Statistics 
United  States,  government  of,  all  branches 
of, 
data  concerning,  210-222 
U.     S.      Realty      Company,      105-108, 

112 
Utilities,  public 
see  public  utilities 


Value  product,  net  (cont.) 

entrepreneurs  and  property,  share  of, 
see  entrepreneurs,  share  of 

security  holders  share  in 
see  security  holders 
Value  product,  total 

see  value  product,  gross 
Vegetables,  50-51 
Victory  loans,  264 

see  loans,  liberty 
Village  government 

sec  city  and  village  government 


Value  added  by  manufacture,  82 
Value,  gross 

see  gross  value 
Value  product,  gross 

in  agriculture,  303,  306-307 
in  construction,  109-112 
in  manufactures,  83 
Value  product,  net 

agriculture,  40,  54-55,  59,  62,  303 

all  industries,  244,  245 

banking,  202,  206-207 

construction,  113 

electric  light  and  power,  158-159,  164, 

165 
express,  144-145 
government  (all  branches) 

components  of,  210 

distribution  of,  217-219 

per  capita,  220-221 

purchasing  power  of,  221 

share,  in  national,  221-222 
street  railways,  154 
telegraphs,  173-176 
telephones,  180-184 
transportation,  116-117 
transportation  by  water,  194,  199 
unclassified  industries,  231-232 
Value  product,  net 
employees'  share  in 

see  employees'  share  of 


Wage  rates 

vs.  average  annual  earnings,  12,  34-38 

see  frequency  distributions 
Wage  distributions,  418-423 
Wages  and  salaries 

in  all  industries,  242 

relation  to  total  income,  37(5,  392,  400- 
414 
see  employees,  share,  also  employees, 
average  annual  earnings 
Wages,  index  of,  279 
Wallace,  H.  A.,  312 
War,  affecting  labor  supply  in  unclassified 

industries,  224 
War  expenditures 

price  index  of,  336 
War  Industries  Board,  304,  325 
Warren,  G.  F.,  307 
Watch  repairing 

see  hand  trades 
Wealth,  gross 

agriculture,  300 
Western  Union  Telegraph  Company,  168- 

178 
West  Virginia  Bureau  of  Mines,  71 
Wireless  telegraphs 

see  telegraphs 
Wiremen,  inside,  107 
Wire  mileage,  telephone,  187-188 
Wool  and  mohair,  46-47,  49 


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